Global oil prices rose as Iran continues to launch strikes across the Middle East in response to ongoing attacks by the US and Israel according to BBC.
Brent crude, the global benchmark for oil prices, jumped by 10% to touch more than $82 a barrel on Monday before easing after at least three ships were attacked near the Strait of Hormuz at the weekend.
Iran has warned vessels not to pass through the crucial waterway in the south of the country, through which about 20% of the world’s oil and gas is shipped.
In London, the FTSE 100 stock market index opened nearly 1% down with airlines seeing their shares prices fall after airspace was closed across the Middle East.
International shipping has almost come to a standstill at the entrance to the Strait of Hormuz, with analysts warning that a prolonged conflict could push energy prices even higher.
The UK Maritime Trade Operations Centre (UKMTO) said that two vessels had been struck, and an “unknown projectile” was reported to have “exploded in very close proximity” to a third.
After its initial surge, Brent crude fell back to $79 a barrel while US-traded oil was up by around 7.6% at $72.20.
“The market isn’t panicking”, Saul Kavonic, head of energy research at MST Marquee told the BBC. “There is more clarity that so far, oil transport and production infrastructure hasn’t been a primary target by any side,” he added.
“The market will be watching for signs that traffic through the Strait of Hormuz returns, which would see oil prices subside again.”
But some analysts have warned it could go over $100 in the event of a prolonged conflict which could have a knock-on effect on inflation and interest rates.
Robin Mills, chief executive at Dubai-based consultancy Qamar Energy and a former executive at oil giant Shell, said: “The jump in prices will feed through almost immediately because the oil traders are very much following the news too.
“At the moment, oil prices are not particularly high, they are still below where they were even two years ago so we’re not in full-blown oil crisis mode yet.”
On Sunday, the Opec+ group of oil producing nations agreed to increase their output by 206,000 barrels a day to help cushion any price rises, but some experts doubt this would help much.
Edmund King, president of the AA, warned the disruption could drive up petrol prices around the world.
“The turmoil and bombing across the Middle East will surely be a catalyst to disrupt oil distribution globally, which will inevitably lead to price hikes,” he said.
“The magnitude and duration of pump price increases depends on how long the conflict goes on.”
Subitha Subramaniam, chief economist and head of investment strategy at Sarasin & Partners, said if oil prices remained high for a sustained period: “It will start to cascade into other prices such as food, agriculture, industrial commodities and that’s just going to really bleed into inflation.”
The pace of inflation has been easing in the UK, leading to the Bank of England cutting interests.
Subramaniam suggested that the Bank may choose to leave interest rates unchanged at 3.75% for the moment despite recently signalling further cuts could be made.
“I would say, on what we know today that this conflict is unlikely to sort of dissipate over the next week or two, we’re not really going to know the impact of the longevity on the energy markets as well as shipping,” she said.
On Sunday, Iran’s Islamic Revolutionary Guards Corps (IRGC) said three tankers from the UK and US had been “struck by missiles and are burning”. The UK and the US have not commented.
The UKMTO said “multiple security incidents” had been reported across the Arabian Gulf and Gulf of Oman, and it had advised ships to “transit with caution”.
At least 150 tankers have dropped anchor in open Gulf waters beyond the Strait of Hormuz, although a handful of Iranian and Chinese vessels have passed through today, according to ship-tracking platform Kpler.
“Because of Iran’s threats, the strait is effectively closed,” Homayoun Falakshahi from Kpler told BBC News.
“The vessels have taken a precautionary measure not to enter as the risks are too high and their insurance costs have sky-rocketed.”
He said the US would likely try to protect shipping routes which, if effective, would prevent an oil price spike, but if the strait remained shut for a long period prices could go “much, much higher”.
The UKMTO said two vessels, which it did not identify, were hit by unknown projectiles, causing fires.
And an unknown project “exploded in very close proximity” to a third, it said, adding the crew of the ship, which it also did not identify, were safe and well.
A fourth incident in the area was also reported to the UKMTO, which it said involved the evacuation of the crew, but the cause is unclear.
Private maritime security company Vanguard Tech said incidents had been reported – which match the details provided by the UKMTO – involving ships flagged to Gibraltar, Palau, Marshall Islands, and Liberia.
Danish container shipping group Maersk said in a statement on Sunday that it would pause sailings through the Bab el-Mandeb Strait and the Suez Canal and reroute ships around the Cape of Good Hope.