Oil surges and stock markets fall after strikes in Iran – what does it mean for petrol prices and your money?
The direct impact of geopolitical events on people’s finances is becoming increasingly common, and it seems certain to happen again after the US and Israel launched an attack on Iran, sparking widespread conflict in the Middle East.
The latest increase follows a year in which US President Donald Trump promoted tariffs on nations around the world amid long-running tensions between Iran and Israel. With Russia’s invasion of Ukraine affecting commodity prices, these cases of large-scale conflict are really affecting people’s pockets around the world.
In the face of recent developments such as Iran’s attack on US and UK ships in the Strait of Hormuz, the oil price rose above 80 dollars per barrel for the first time in more than a year.
If the attacks continue for a long time, this will have significant knock-on effects in terms of inflation, interest rates and commodity prices. Share markets are reacting to the uncertainty, with the FTSE 100 falling this week and indexes in Asia falling for a second day in a row.
Here, Independent takes a look at how the final conflict may affect you.
oil and gold
The price of Brent oil is on the rise once again, although it has calmed down somewhat after an initial rise of almost 10 percent on Monday. It is at $80.90 at the time of writing, having risen nearly 4 percent on Tuesday.
OPEC has increased the amount of oil it will produce from next month to offset the effects of the current situation, raising hopes that this will be a short-term increase rather than a price shock; but this is only possible if the problem is resolved quickly.
Approximately one-fifth of the world’s oil and gas passes through the Strait of Hormuz; Therefore, Iran keeping this strait closed for a long time will have a greater impact on the rise in prices.
Richard Hunter, head of markets at Interactive Investor, said the attacks “unsurprisingly have had a debilitating impact on many asset types” and concerns about “the escalation and duration of conflict” were significant over how high prices could fluctuate.
“At the center of the storm was a potential inflationary rise in the price of oil at a time when central banks were still holding out hope that any price increases could be contained. The price of oil rose almost 9 percent on Monday despite OPEC announcing it would increase production, but attacks on ships in the Strait of Hormuz kept tensions high.”
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Get a free partial share of up to £100.
Capital is at risk.
Terms and conditions apply.
ADVERTISING
Meanwhile, gold was another commodity that rose but fell slightly on Monday. However, futures have rebounded above $5,300 this week after a sharp 3.5 percent rise. The precious metal is often the safe haven that investors seek when uncertainty prevails in other financial markets.
Oil, inflation and interest rates
The numbers above are what’s going on Now; knock-on effects on fuel and economy, Next.
First, higher oil costs naturally mean that fuel will become more expensive; This is partly why OPEC announced additional supplies to prevent costs from getting too high. However, experts suggest that if the Strait of Hormuz is closed for a long time, oil may quickly rise to the 90-100 dollar range.
But it’s still pretty low right now; However, even this increase will soon be reflected in gas stations.
From a long-term perspective, Ryan Sweet, chief global economist at Oxford Economics, published a note suggesting that a prolonged closure of the Strait will keep oil prices high in the first half of the year. “We estimate that this could push the average oil price to almost $80 per barrel in the second quarter, then gradually decline to just over $60 towards the end of the year. Gas prices will also rise sharply,” he said.
Meanwhile, given the timing relative to domestic events in the UK, FairFuelUK called on Chancellor Rachel Reeves to “declare in her spring statement that fuel duty will remain frozen for the duration of parliament and cancel any planned increases in the autumn budget.”
Elsewhere, it’s important to note that higher energy costs (not just at the gas pumps, but also on heating bills, production costs, everything transportation-related, and more) are having an inflationary impact. Although inflation in the UK is gradually falling and is forecast to reach 2 per cent by the spring, these events could derail this target. Inflation in the EU was already below 2 percent.
Additionally, the potential for inflationary price movement in the UK means we will be much less likely to see a cut in interest rates at the end of this month as expected last week; The Bank of England is likely to take a cautious stance and extend its interest rate cut decision until April.
Stock markets, investments and retirement
The FTSE 100 fell 1.2 per cent on Monday as investors began to react to weekend events. US markets started lower but rebounded the day to finish mostly flat, but futures markets are once again showing that the S&P 500 will open down around 1 percent and the Nasdaq will open further in the red, down around 1.4 percent.
A similar story unfolded in Europe on Tuesday; London’s main listing fell 1.2 percent after the opening bell, while Germany’s DAX fell 2 percent. Elsewhere, France’s CAC 40, Spain’s IBEX 35, Amsterdam’s AEX and the broader Euro Stoxx 50 are all in the red around 1.5 to 2 percent.
Overnight in Asia, almost all major countries saw their primary indexes fall for a second day; Australia, Japan, Hong Kong, South Korea, India and Vietnam are in the red, some of which have already completed their trading day at the time of writing.
Looking more specifically at who was affected, airlines were naturally hit hard on Monday. IAG, which owns British Airways, lost more than 5 per cent – one of the FTSE 100’s biggest declines. Banks, hotel owners and events companies also experienced declines; Meanwhile, perhaps unsurprisingly, companies such as arms manufacturer BAE Systems were among the few emerging companies of the day.
All this means that people with a range of investments, whether stocks, ISAs, workplace pensions or SIPPs, could see declines at the start of this week.
Generally speaking, while pension levels can rise and fall with market events, if you’re not close to retirement age, it’s generally not something experts say you should be unduly worried about about the extent of panic trading that could damage long-term returns.
