In short
- Brent crude went back above $100 a barrel on Wednesday and reached $105 as the conflict between the US and Iran in the Gulf intensified.
- The effective closure of the Strait of Hormuz has prevented oil and gas supplies from the Gulf from reaching global markets.
- Yields on UK 10-year government bonds were at their highest since 2007, while 20- and 30-year bond yields reached levels not seen since 1998.
- Wholesale gas in the UK rose above 200p a therm for the first time since the end of 2022.
- Ofgem’s energy price cap is due to increase by 3.6% at the start of October, with the next change in January.
Oil prices climbed to $105 a barrel and Brent crude stayed above $100 on Wednesday after the effective closure of the Strait of Hormuz cut off Gulf supplies, while US and UK long-term borrowing costs rose to their highest levels in decades.
How high have oil and gas prices gone?
Brent crude went back above $100 a barrel on Wednesday and has continued to climb, reaching $105, as the conflict between the US and Iran in the Gulf intensified in recent days. The war has led to the effective closure of the Strait of Hormuz, preventing supplies of oil and gas from the Gulf from reaching global markets.
Natural gas prices have also soared on wholesale markets. In the UK, gas rose above 200p a therm for the first time since the end of 2022. Storage levels in Europe are much lower than normal for the time of year, and the need to fill reserves ahead of winter has helped push prices up.
Why are government borrowing costs rising?
The increase in energy costs has raised fears of a spike in inflation, and that has pushed up yields on government bonds around the world. UK yields on 10-year bonds were at their highest since 2007, while 20- and 30-year bond yields reached levels not seen since 1998. US and UK long-term borrowing costs also surged to their highest level in decades.
Higher yields imply a higher cost of borrowing for the government at a time when public finances are under pressure, and they affect the rates consumers pay for some financial products, such as fixed-rate mortgages. Central banks are also weighing how to respond to energy-driven price pressure, as the Fed and Bank of England weigh rate rises as oil prices surge.
What has Donald Trump said about the conflict?
US President Donald Trump said at a Republican Party convention in Texas on Wednesday that he did not think the fighting would end until after the US mid-term elections in November.
What has happened to shipping in the Red Sea?
Concerns over supply routes have grown after Iran-aligned Houthi forces were reported to have seized Yemen’s port of Mokha, a key Red Sea port. The move could elevate fears of further shipping disruptions.
What does this mean for UK household energy bills?
Ofgem’s price cap protects UK consumers from short-term spikes on the wholesale gas market, but households still face steeper bills if prices remain high for an extended period. The cap is already due to increase by 3.6% at the start of October, with the next change after that coming in January.
Consumer finances more broadly are under scrutiny too, with couples advised to split pension payments during parental leave.
What are analysts saying?
Analysts said the combination of rising energy costs and higher borrowing costs was adding pressure on financial markets.
Chris Beauchamp, chief market analyst at trading platform IG, said investors were becoming increasingly concerned about the economic impact of higher oil prices.
“It feels like investors worldwide are now waking up to the crisis in oil markets,” Beauchamp said.
He warned that the surge in energy prices could weigh heavily on the global economy if it continues.
Frequently asked questions
Why did oil prices rise to $105 a barrel?
Brent crude went back above $100 a barrel and reached $105 after the effective closure of the Strait of Hormuz prevented oil and gas supplies from the Gulf from reaching global markets.
What is happening to UK borrowing costs?
Yields on UK 10-year government bonds hit their highest level since 2007, and 20- and 30-year bond yields reached levels not seen since 1998, implying a higher cost of borrowing for the government.
Will UK household energy bills rise?
Ofgem’s price cap shields UK consumers from short-term wholesale gas spikes, but the cap is already due to rise by 3.6% at the start of October, with the next change in January.
What did Donald Trump say about the conflict?
US President Donald Trump said at a Republican Party convention in Texas that he did not think the fighting would end until after the US mid-term elections in November.
With reporting from BBC News.
Stock image, not from the events described. Bay of Eilat-coral observatory-oil tanker depot2 — Oyoyoy / Wikimedia Commons (CC BY-SA 3.0)