Oil, gas and borrowing costs surge as fears over Middle East escalate

Oil prices have soared to $105 per barrel due to concerns over the protracted conflict in the Middle East, sparking worries that inflation may accelerate. The ongoing US-Iran conflict in the Gulf has intensified, resulting in sharp increases in both crude oil and gas prices. Brent crude surpassed $100 per barrel, continuing its upward trajectory despite the closure of the Strait of Hormuz, which has hampered the flow of oil and gas from the region.

President Trump expressed doubts about the conflict's resolution before the November US mid-term elections. Financial markets are facing pressure from the convergence of surging energy costs and higher borrowing expenses. Analysts warn that escalating oil prices could have severe implications for the global economy if the trend persists.

The price of natural gas has also skyrocketed, reaching over 200p per therm in the UK for the first time since 2022. Lower-than-average storage levels in Europe, coupled with the need to replenish winter reserves, have contributed to the price surge. While UK consumers are shielded from short-term gas market spikes by Ofgem's price cap, extended high prices could lead to higher household bills.

Inflation fears have grown in tandem with rising energy costs, driving up government bond yields worldwide. In the UK, 10-year bond yields reached their highest level since 2007, and 20- and 30-year bond yields hit levels not observed since 1998. This heightened borrowing cost for the government could directly impact households through higher rates on products like fixed-rate mortgages.