The escalation of conflict in the Middle East has propelled crude oil prices above $90 a barrel, marking the sharpest weekly increase since the onset of the Covid-19 pandemic. Reports indicating Kuwait’s reduced oil output due to storage constraints have intensified concerns about a potential crisis in oil supplies, heightening the risk of global inflationary pressures.
Oil Prices Skyrocket
As tensions escalated with the US and Israel’s military actions against Iran, the price of Brent crude surged over 25%, rising from approximately $72.50 to a peak of $91.89 on Friday. This significant increase is the largest seen since early April 2020, as markets react to the disruption caused by the ongoing conflict.
The fears of a broader storage crisis loom large, with experts from consultancy Kpler warning that oil reserves in Saudi Arabia and the United Arab Emirates could reach capacity within 20 days. This situation could compel major oil producers to consider halting extraction altogether—a drastic measure that would add further strain to a volatile market.
Regional Production Concerns
The stakes are high, as Qatar’s energy minister, Saad al-Kaabi, cautioned that if the conflict persists, all Gulf energy exporters might be forced to cease production within weeks, potentially driving oil prices up to $150 a barrel. Al-Kaabi highlighted that even a swift end to hostilities would not immediately resume liquefied natural gas (LNG) exports, which are crucial given Qatar’s role in supplying about 20% of global LNG.
Although the UK relies on Qatar for a mere 2% of its gas supplies, fears surrounding European competition for LNG cargoes have already caused UK gas prices to surge to their highest levels in three years.
Threats to Maritime Navigation
Adding to the turmoil, Iran’s Islamic Revolutionary Guard Corps has issued threats aimed at Western vessels in the strategic Strait of Hormuz, a vital maritime route for a substantial portion of the world’s oil and LNG trade. Since the conflict escalated, at least nine ships have reportedly faced attacks in the Gulf, creating a sense of unease among traders.
Despite the US administration’s attempts to reassure markets with proposals for military escorts and insurance for tankers navigating the strait, market confidence remains shaky. Estimates suggest that around 600 vessels are currently in the Gulf, including significant numbers of oil tankers and LNG carriers.
Economic Repercussions
The rising costs of energy have sparked inflationary fears, adversely affecting UK government bond prices. Yields on five- and ten-year bonds are set to experience their most substantial weekly increase since the controversial “mini-budget” introduced by former Prime Minister Liz Truss in September 2022. Concurrently, expectations for an interest rate cut in the UK have dwindled sharply, from an 80% likelihood to just 15%.
The turmoil has also impacted stock markets globally. The FTSE 100 index in the UK saw a decline of over 5%, its worst performance since April 2025, while the pan-European Stoxx 600 index mirrored this trend. Airline stocks have particularly suffered; British Airways’ parent company IAG fell by 12%, and Wizz Air warned of potential profits losses amounting to €50 million (£43 million) due to the ongoing crisis.
Why it Matters
The resurgence in oil prices amid geopolitical tensions not only threatens to stoke global inflation but also undermines economic stability across multiple sectors. The reliance on Gulf energy supplies makes economies vulnerable to fluctuations in oil prices, particularly as fears of production halts and rising shipping risks mount. As governments and markets grapple with these developments, the potential for prolonged economic strain cannot be underestimated.