Market update: Crude and gas prices shoot even higher as key trade route at risk
Susannah Streeter, chief investment strategist, Wealth Club: “Downbeat sentiment is pervading equity markets as the conflict in the Middle East escalates, with global repercussions. London’s FTSE 100 has fallen deeper into the red as the war widens and companies assess the impact of severe disruption across the region on their operations. Airline stocks have sunk further, as the cost of aviation fuel looks set to rise, key routes remain closed, and travellers’ confidence takes a significant hit. Mining stocks have fallen back as the edge has been taken off demand for precious metals. The dollar has strengthened, making gold and silver less attractive to buyers in other currencies. The greenback has firmed up amid expectations that the Fed might keep interest rates higher for longer to offset inflationary risks the conflict has sparked.
Energy costs continue to mount as Lebanon has been drawn into the conflict and Gulf states are still reeling from a barrage of Iranian strikes. Iran is retaliating to attacks from Israel and the US and is now threatening to set fire to ships using the crucial Strait of Hormuz. Given that it’s an essential route for around a fifth of global oil and gas supplies, this has sent energy prices even higher. LNG wholesale costs had already jumped after the world’s largest LNG export plant was closed following a strike by an Iranian drone. These latest warnings from Tehran have added further upward pressure to prices, with benchmark Brent crude now trading above $80. European and UK gas futures have surged to their highest level since January 2023.
This highlights the risks of reliance on volatile imports and adds urgency to the need to accelerate the transition to renewables, which still requires significant grid and storage upgrades. Companies already counting the high energy costs in the UK are now bracing for further financial pain.
Freight prices are also rising sharply, given the circuitous routes companies are having to take. The resilience of global shipping is once again being tested and, as the crisis widens, more carriers are halting transits through the Red Sea. This will add significant time and cost to journeys, risking further snarls in supply chains.
The situation casts a cloud of uncertainty over the economic projections chancellor Rachel Reeves is set to deliver about the UK economy. The Spring Statement was designed to be a shorter, relatively upbeat affair, given the improved borrowing figures released in January. But with the world plunged into fresh uncertainty, she is likely to strike a highly cautious tone, focusing on maintaining stability and sticking to fiscal rules amid heightened tensions.”