Oil Price Surges Above $100 as US Threatens Strait of Hormuz Blockade

Oil prices have surged back above $100 a barrel, with a benchmark barrel of Brent crude oil nearing $103 overnight. This rise comes after US President Donald Trump stated that the US military would blockade the key Strait of Hormuz shipping lane.

Oil traders reacted to the news, pushing the cost up by nearly 7% on Monday. The price had previously remained below $100 from Wednesday until market open on Sunday evening. This earlier drop was attributed to a temporary ceasefire between the US and Iran.

However, the breakdown in talks between the US and Iran over the weekend led the US to announce it would begin a blockade of Iranian ports from 3pm UK time. The warning of further disruption to the Strait of Hormuz, through which roughly a fifth of the world's oil and liquified natural gas (LNG) flows, is the primary driver behind the oil price increases seen on Monday.

Similarly, UK wholesale gas costs saw an increase of more than 9% following the news of potential disruption.

More expensive oil and gas are expected to lead to a general rise in prices. Gas prices, in particular, directly influence household energy bills and the cost of fertiliser. Higher energy bills and pricier fertiliser contribute to more expensive food production, potentially leading to increased food costs for consumers.

Consumers have already been significantly impacted by previous fossil fuel price spikes. Research from the Resolution Foundation thinktank indicated that these higher energy prices will leave the median working-age household £480 worse off this year compared to a scenario without the conflict.

Last week, car services company the RAC reported that average prices for both petrol and diesel had increased daily for the preceding 40 days. Latest figures from Friday showed petrol prices had increased by 19% on pre-war levels, while diesel was up just shy of 49%. Specifically, petrol averaged 158.16 pence per litre, and diesel averaged 191.31 pence per litre.

The cost of home heating oil has also doubled since the end of February, rising from 60.46 pence per litre to 121.76 pence per litre when purchasing 1,000 litres, according to supplier Boiler Juice.

In financial markets, the UK's flagship stock index, the FTSE 100, shed nearly 0.5% on the open. The stock sell-off was also evident across Europe, with the pan-European Stoxx 600 index dropping just under 0.8%.