THE price of oil has passed $100 a barrel for the first time since 2022 as experts warn it is “disastrous for global economies” and for the UK, “this is very bad”. Other experts warn the price of oil could push towards $150 and that will cause petrol prices in the UK to head towards £2 a litre.
Over the weekend, the US and Israel launched more strikes in Iran and called for the country to unconditionally surrender.
But, in a direct challenge, Mojtaba Khamenei, the son of Ayatollah Ali Khamenei who was killed nine days ago, has been named the new supreme leader.
US President Donald Trump said the oil price rise “is a very small price to pay”.
London’s FTSE 100 share index has dropped 1.4% in the first couple of minutes of trade this Monday morning, as investors react to the surge in oil prices.
This morning, stock markets in Asia fell sharply, with Japan’s Nikkei 225 index closing down by more than 5%.
In South Korea, the Kospi index sank by more than 8% at one point, triggering a 20-minute halt to trading – it eventually closed down 6%.
The price of petrol in the UK is now expected to climb which will lead to higher inflation, experts said.
That will lead to swap rates rising and the Bank of England now being expected to hold, or even increase, its base rate.
This will mean higher mortgage costs and higher interest rates for savers.
Donald Trump is damaging the UK economy
Riz Malik, Independent Financial Adviser at Southend-on-Sea-based R3 Wealth, said Donald Trump was “damaging the UK economy”.
He added: “The spike in oil price is disastrous for global economies, not just the UK’s. Even oil producers don’t want to see oil north of $100 as they know the demand destruction impact it has.
“Unless this conflict comes to a quick conclusion, inflation will spike and interest rate increases will start getting priced in. Donald Trump is damaging the UK economy and is going to cost UK households money.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the war could push the price up to $150 a barrel.
He added: “Global stagflation is the most likely outcome of oil hitting $100 as the ripple effects of the severe market anxiety over Middle East stability, specifically the Strait of Hormuz, fans out across the globe. Analysts warn that a prolonged blockade could push Brent crude toward $120 to $150.
“In the UK, this translates to petrol prices potentially surpassing 165p per litre. Economically, this is a ‘double hit’. Higher energy costs drive up inflation, likely forcing the Bank of England to not only pause planned interest rate cuts but could well see rate increases to prevent an inflationary spiral.
“The FTSE 100 and Asian market drops reflect fears of ‘demand destruction’ – where the cost of living becomes so high that consumer spending collapses.”
Disastrous for global economies
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said petrol and diesel prices in the UK will rise.
She added: “If disruption around the Strait of Hormuz persists, the issue is not just higher crude prices but a broader supply shock affecting shipping, insurance, food imports and general price levels. Oil could move materially higher if the channel becomes commercially unusable.
“You do not need every barrel to disappear for prices to surge, if insurers will not cover ships, crews refuse to sail, or naval escorts prove impractical, the market quickly prices scarcity. In that context, $100 is not a ceiling but simply the point at which markets begin recognising the disruption. For UK motorists this is clearly negative.
“Higher crude feeds into higher wholesale fuel costs and eventually higher petrol and diesel prices. The bigger concern, however, is that energy sits at the heart of the economy. If oil and gas remain elevated, the impact spreads into transport, food production, manufacturing and household bills, worsening the inflation outlook.”
David Belle, Founder and Trader at Fink Money, said the UK is in for a double whammy of high inflation and a destroyed labour market.
He added: “The G7 have announced they are willing to drop more supply onto the market which has temporarily paused the rally. Overnight, West Texas Intermediate (WTI) crude traded to roughly $119 while Brent traded to approximately the same. In terms of how high, we could see a sharp upside move to about $140 if we see continued problems with the Strait of Hormuz where supply ends up being constrained. For the UK, this is very bad.
“The Office for Budget Responsibility (OBR’s) growth projection only works with energy prices at a lower average and that has been blown up in a few days since the Spring Statement. Ed Miliband’s policy has an extra £1billion baked into consumer energy bills each year to fund his insane net zero experiment, which no other country is following, while also banning north sea drilling.
“The problem for the UK is if we get a double whammy of higher inflation again with the already destroyed labour market and growth prospects.”
For the UK, this is very bad
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said only Trump can bring the world back from the brink.
He added: “Get ready for everything to get much more expensive. The conflict with Iran is not going to be the short sharp shock like the 12 day war last year, this could be 12 months and that means pain for the West.
“With oil tankers paralysed in the Strait of Hormuz, oil prices are spiking at around $115 dollars a barrel. This could lead to petrol prices over £2 per litre and energy bills rocketing, unless the government steps in. However, that would cause gilt rates to rise meaning higher mortgage and borrowing costs. There’s no other way of avoiding a much more expensive world.
“The only off-ramp is that Trump feels the pain of high oil and collapsing financial markets and negotiated with the new Supreme Leader, but that’s unlikely as he wanted a say in who would be sat at the table.”
Michelle Lawson, Director at Fareham-based Lawson Financial, said the UK needs to scrap net zero.
She added: “Net zero needs to be reduced to zero sooner rather than later. This radical path has just further reduced our options in a time of crisis like now. Normal hardworking families just doing every day tasks will be hit.
“The knock on inflation will be damaging. The chancellor can help families by temporarily reducing taxes but guessing she won’t. Hold on to your hats, again, for another bumpy ride.”
Photo by Waldemar Brandt on Unsplash.
