Key facts
- Brent crude oil prices rose above $100 per barrel.
- The price increase was driven by Houthi attacks on Saudi tankers.
- European natural gas futures jumped to €62/MWh.
- UK gilts experienced a sell-off, raising borrowing costs.
- The escalating conflict threatens UK cost of living measures.
Oil prices surged past $100 per barrel on Thursday afternoon as tensions in the Middle East re-escalated, with Houthi militants, backed by Iran, attacking two Saudi Arabian tankers. This development undermines Prime Minister Andy Burnham's cost of living initiatives, which include stripping VAT from energy bills and capping bus fares.
The renewed conflict has also impacted other energy markets, with European natural gas futures jumping to €62/MWh from a June low of €41. UK government bonds, or gilts, were sold off, pushing borrowing costs higher as markets price in potential interest rate hikes.
President Trump responded to the attacks by threatening Iran with "major military punishment," holding the country responsible for the re-emergence of war. US forces also carried out strikes on maritime targets. The Houthi actions followed a Saudi blockade of Yemeni ports, and the Iranian leadership's military division has also targeted ships in the Strait of Hormuz.
City analysts noted that household costs are heavily dependent on developments in the Middle East. Former Prime Minister Sir Keir Starmer advised his successor to prioritize diplomacy, given the impact of international affairs on domestic bills.