The price of oil spiked once more as trading for the new week began after Donald Trump ramped up pressure on his Nato peers to help get supply flowing.
Brent crude, the international benchmark for oil prices, jumped 2.9 per cent as trading open after the weekend to near $106.12 a barrel, but later gave up some gains, sending the price to just shy of $105.
It came as the President issued a stark warning to Nato, warning of a “very bad” future if allies fail to help open the Strait of Hormuz.
The strait – a strategic waterway connecting the Persian Gulf to the Gulf of Oman and the broader Indian Ocean – sees around a fifth of the world’s oil supply flow through and has had traffic all-but-halted since the conflict in the Middle East broke out.
“It’s only appropriate that people who are the beneficiaries of the Strait will help to make sure that nothing bad happens there,” Trump told the Financial Times.
Downing Street also confirmed on Sunday Sir Keir Starmer had a phone call with the President where the “leaders discussed the ongoing situation in the Middle East and the importance of reopening the Strait of Hormuz to end the disruption to global shipping, which is driving up costs worldwide.”
Richard Hunter, head of markets at interactive investor, said: “The battle lines have been firmly drawn and the oil market remains the pressure point.”
‘British economy clearly needs help’
The latest rise in oil was also driven by the US’ bombing of Kharg Island. The area is a five-mile-long coral island in the Persian Gulf 27 and serves as a key oil hub for Iran, with around 90 per cent of the country’s exports flowing through.
“The bombing of Kharg Island – and the continued attacks between the parties – suggests the conflict is not close to an end,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
She added with a handful of central banks set to meet this week – including the Bank of England and the Federal Reserve – rate-setters would have their plate full with weighing up the inflationary impact of the war in Iran.
“All of them will be torn between the upcoming spike in inflation due to rising oil and gas prices and the threat of slowing economies and rising unemployment,” Ozkardeskaya said.
The Bank of England, which was tipped to cut rates in the March meeting, is now expected to hold rates at 3.75 per cent.
“The British economy clearly needs help: recent data showed that the UK economy didn’t grow at all in January,” Ozkardeskaya added.
“Unfortunately, the UK may not get that help just yet – the BoE will first have to deal with the renewed inflationary pressures before supporting growth.”
Starmer to unveil energy package
The spike in oil prices may jar with government plans to push ahead with growth efforts across the labour market and technology.
On Monday, the Prime Minister is set to unveil details around an energy support package, with £50m expected to be offered to help people who use heating oil.
Work and pensions secretary Pat McFadden will meanwhile unveil a new scheme to compensate employers which hire young people not in education, employment ot training (neets). There are nearly 1m neets across the country, official data has shown.
And on Tuesday, Rachel Reeves is set to deliver a growth-focused speech on investment, trade and AI.
Her speech will reflect on new efforts to align the country’s economy more closely with the EU’s single market, a day after EU relations minister Nick Thomas-Symonds will have met with EU officials to get agreements on food trade and immigration over the line.
Economists fear the war could drag on and leave the government reeling from the effects of higher energy prices, with the Bank of England expected to hold interest rates this week as inflation is at risk of jumping.
It would leave borrowing costs higher for both households and the government, putting Labour’s growth mission under more intense pressure and limiting Reeves’ ability to roll out more expensive packages for Britons.
