Oil Price Surges Above $100 Amid Escalating Middle East Conflict and Houthi Attacks

The oil price broke above $100 a barrel for the first time in two months as a fresh escalation of the Middle East conflict threatens to compound disruption to global oil supplies.

The benchmark oil price rose sharply on Thursday, from $95 the day before, amid fears that Yemen’s Houthi militia could strangle Saudi oil exports through the Red Sea while US-Iran tensions over oil flows through the strait of Hormuz intensify.

The disruption to two critical oil trade arteries has reignited fears that oil could climb to highs of $120 a barrel in a blow to households and the global economy after years of energy cost inflation.

Share prices also fell on both sides of the Atlantic, reflecting the volatile situation in the Middle East and fears of a bubble in AI stocks – sending New York’s tech-heavy Nasdaq index down by more than 2%. Shares in Tesla crashed 12% after it reported lower-than-expected profits and amid wider worries about AI spending.

The Middle East conflict widened as the Iranian-aligned Houthis claimed responsibility for attacks on two Saudi Arabian oil tankers, the ‌Encelia and Layla, using a number of ballistic and cruise missiles as well as drones.

The Houthi militias launched the attacks, which have left one vessel ablaze, after accusing the crews of violating a naval blockade imposed by the group in the Red Sea.

The escalation marks a new front in the Gulf oil crisis, almost five months after Tehran’s effective block on the strait of Hormuz triggered what many feared would bring the greatest energy supply disruption in the history of the market.

In the first weeks after the US-Israeli attacks on Iran, oil prices surged past $100 a barrel and market observers predicted prices of up to $150 a barrel as oil flows through Hormuz came to a halt.

The oil price peaked at $126 a barrel in April during the conflict, but fell back below $100 in late May and then to lows of $71 at the start of July amid hopes of a ceasefire in the region. The price began to climb again after the memorandum of understanding between the US and Iran fell apart and fresh hostilities broke out in the Gulf.

The market has avoided runaway oil prices due to “cushioning factors” that have helped to cool the market, according to Fatih Birol, head of the International Energy Agency. But he warned this week that there was no room for complacency amid the escalation in hostilities.

Fears about the mounting economic impact from the Iran war caused government borrowing costs for the world’s biggest economies to rise on Thursday as investors weighed up the risk that a surge in the oil price could rekindle global inflationary pressures.

Investors dumped US, German and Japanese government bonds to push up the interest on government borrowing – or yields – across the globe. In the UK, the yield on 10-year government borrowing rose by about 0.1 percentage points to trade above 5.1% for the first since May.

The latest market upheaval has come amid investor jitters in Britain over the tax and spending plans of the new prime minister, Andy Burnham, which some City traders have said could add to pressure on government borrowing costs.

Chris Beauchamp, chief market analyst at the online trading platform IG, said: “Government bond yields continue to climb, spelling major trouble for developed economies and risking a repeat of the March/April 2025 market panic.

“Volatility is surging and equities are moving further into the red as a return to full-blown conflict now looms, potentially drawing in Israel and more countries in the region.”