London, United Kingdom – Oil and gold prices experienced a surge following reports of an alleged Israeli missile strike on Iran. The international benchmark Brent crude rose above $90 a barrel before receding as Iran downplayed the impact of the attack. At the same time, gold prices approached a record high before settling below $2,400 per ounce.
Worries about a potential escalation in the Middle East conflict have raised concerns about disruptions to oil supplies. Investors are closely monitoring Israel’s response to Iran’s recent drone and missile attack. Initially, oil prices spiked by 3.5%, but Brent later fell to $87 a barrel after Iranian state media disputed reports of damage in Isfahan province.
The sharp and sustained increases in oil prices pose a risk of fueling inflation, impacting countries heavily reliant on oil to produce gasoline and diesel. Energy prices have been a significant driver of the rising cost of living worldwide in recent years. Analysts highlight concerns about the potential inflationary impact of these price fluctuations.
Randeep Somel, a fund manager at M&G Investment Management, emphasized the market’s apprehension about inflation and how it could be exacerbated by current events. The UK continues to grapple with inflation rates above the Bank of England’s 2% target, prompting concerns among policymakers about the economic implications.
While the current oil price remains below the levels seen after Russia’s invasion of Ukraine in 2022, concerns persist about the impact of escalating tensions in the Middle East. The heightened uncertainty has also led to questions about the potential disruptions to shipping through the crucial Strait of Hormuz, where a significant portion of the world’s oil supply passes.
Members of the oil-producing cartel OPEC, such as Saudi Arabia, Iran, the UAE, Kuwait, and Iraq, rely heavily on the strait for oil exports. Iran, ranked seventh globally in oil production and the third-largest OPEC member, plays a critical role in the international oil market. Analysts point to the recent surge in oil prices as a reactionary response to fears of increased conflict between Israel and Iran, highlighting the fragility and volatility of the Middle East situation.
Stock markets reacted to the developments, with indices in various countries experiencing declines. The FTSE 100 and FTSE 250 in the UK both fell, while Asian markets, including Japan’s Nikkei 225, Hong Kong’s Hang Seng, and South Korea’s Kospi, also saw decreases. The global financial markets remain sensitive to geopolitical tensions in the region, underscoring the interconnectedness of economies worldwide.
