Oil rises above $100 first time since July over Iran war

Brent crude has risen above $100 a barrel for the first time since July as the escalating US-Iran conflict threatens to further disrupt oil supplies and shipping through the Middle East.

Brent, the global oil benchmark, climbed to $100.19 a barrel on Wednesday, its highest level in six weeks, before easing to around $99.93 in early trading. US West Texas Intermediate crude rose to $94.52 a barrel.

The latest surge followed a fresh escalation in the conflict, including Iranian missile attacks on a U.S. base in Jordan and attacks on vessels near the Strait of Hormuz. Iran-backed Houthi forces in Yemen also launched attacks on Saudi Arabian cities and energy infrastructure, further raising concerns about regional oil supplies.

The conflict, which began in February, has already disrupted oil flows through the region. The Strait of Hormuz, one of the world’s most important oil shipping routes, normally carries about 20 million barrels of oil and other petroleum products a day, equivalent to roughly a fifth of global oil and liquefied natural gas supplies.

Shipping through the strait has fallen sharply since the conflict intensified. Preliminary data from commodities analytics firm Kpler showed only six commodity vessels passed through the waterway on Tuesday, compared with a 10-day average of 12.

The uncertainty over how much oil is actually moving through the strait is adding to the price pressure.

Reuters reported that estimates of current flows vary widely, with some data suggesting volumes have fallen to between about 4.3 million and 9 million barrels a day. Before the conflict, the waterway handled roughly 20 million barrels a day.

Inflation threat grows

The oil shock is also raising concerns about a new wave of inflation.

Higher crude prices feed into the cost of petrol, diesel, aviation fuel, transport and manufacturing, increasing the cost of moving goods and producing a wide range of products.

That creates a difficult choice for central banks. If higher energy prices push inflation higher, monetary authorities could be forced to keep interest rates elevated for longer or, in some economies, consider further increases even as higher borrowing costs weigh on economic growth.

The Guardian reported that the latest increase in oil prices is already adding to expectations of tighter monetary policy, particularly in economies where inflation remains above central-bank targets.

In the UK, for example, petrol and diesel prices have risen sharply, while the Bank of England is facing renewed pressure over the inflationary effects of the conflict. Reuters reported that markets were pricing in a greater possibility of future rate increases as energy costs rose.

The effect could extend well beyond energy markets. Higher fuel costs can increase transport and production expenses, squeeze household incomes and corporate margins and put pressure on food and other consumer prices.

Oil producers face a mixed outlook

For oil-producing countries like Nigeria, the rise in crude prices could provide a boost to government revenues and foreign-exchange earnings if higher prices are sustained. But it could also stoke inflation.

The current crisis also highlights the vulnerability of the global oil market to disruptions in a relatively small number of strategic waterways.

Even as producers outside the Middle East increase output, the International Energy Agency expects global oil supply to decline by 4.3 million barrels per day in 2026, according to Reuters. That leaves the market more exposed to prolonged disruptions in the Gulf.

Major investment banks have already raised their oil-price forecasts. Goldman Sachs, Bank of America and HSBC are among institutions that have increased their expectations as the conflict threatens to last longer and disrupt more supplies.