Oil prices surge past $100 as US-Iran strikes and Houthi shipping attacks escalate

The conflict between the United States and Iran has entered a new and more dangerous phase, with oil prices surging past $100 a barrel for the first time in months. The latest escalation began when the US military said it had destroyed five Iranian oil tankers, prompting Iran's Revolutionary Guards to retaliate by attacking 10 vessels, including American warships, near the Strait of Hormuz. Iran also fired missiles towards a US base in Jordan, where air defences intercepted 18 of 20 missiles, with no casualties reported.

The tit-for-tat strikes have reignited fears about global oil supplies, pushing Brent crude above $108 a barrel at one point. The Strait of Hormuz, through which around 20% of the world's oil passes, has seen traffic slow to a trickle under a US naval blockade. Iran, unable to export its own oil, has threatened to stop other nations' shipments too. As one analyst put it, "if we cannot export our oil, so no one else should be able to either."

At the same time, Iran's allies, the Houthi rebels in Yemen, have opened a new front. They have captured the port of Mocha and advanced towards the Bab al-Mandab strait, the southern entrance to the Red Sea. This waterway has become a vital alternative route for Saudi oil after the Strait of Hormuz was choked off. The Houthis have also launched drone strikes on Saudi oil infrastructure, including a key pipeline used to bypass the Gulf. Saudi Arabia, which had been supporting US actions against Iran, now finds itself directly under attack.

The economic fallout is being felt far beyond the Middle East. In the UK, the average price of petrol and diesel has risen sharply, with the RAC reporting levels not seen since 2022. Pump prices have jumped by around 8 pence a litre in just a few days. For a typical family car, filling up now costs more than £90. The wholesale price of gas has also climbed to a four-year high, threatening higher energy bills this winter. Food inflation is expected to rise, with wheat and other staples becoming more expensive due to higher transport and fertiliser costs.

Governments are under pressure. In the US, diesel prices have exceeded $6 a gallon, a politically sensitive issue ahead of the midterm elections. President Trump, facing an uphill battle, has promised a $5,000 "Trump dividend" to every adult citizen if Republicans retain control of Congress. The proposal, estimated to cost $1.3 trillion, has drawn criticism from within his own party. Meanwhile, the Bank of England has warned of inflation risks, and the UK government's borrowing costs have hit their highest level since 1998, adding to the Chancellor's budget headaches.

The conflict has also unsettled global markets. Asian stock indices fell sharply, with Japan's Nikkei dropping more than 2%. At the BRICS summit in Delhi, leaders are struggling to present a united front, given that member states such as Iran and the UAE are on opposite sides. The UN special envoy for Yemen has warned of a "new and more dangerous phase" in the civil war, as the Houthis tighten their grip on the Red Sea coast.

There is no sign of a diplomatic breakthrough. Both Washington and Tehran appear locked in a battle of wills, with each side believing time is on its side. Yet the longer the conflict continues, the more the global economy pays the price. As one expert warned, "there's nothing left in the system."