Oil surges and stock markets fall after strikes in Iran – what does it mean for petrol prices and your money?

It is becoming increasingly common for geopolitical incidents to have a direct impact on people’s finances, and this looks certain to happen again after the US and Israel launched strikes on Iran, sparking widespread conflict across the Middle East.

The latest escalation comes after a year in which US president Donald Trump instigated tariffs on nations around the world during the prolonged tension between Iran and Israel. Along with the invasion by Russia on Ukraine – which affected commodity prices – these large-scale cases of conflict are having a real impact on people’s pockets across the globe.

In the face of the most recent developments, with Iran launching strikes on US and UK ships in the Strait of Hormuz, the price of oil has risen to above $80 per barrel for the first time in over a year.

That will have significant knock-on effects in terms of inflation, interest rates and commodity prices if the attacks are prolonged. Stock markets have been reacting to the uncertainty with the FTSE 100 falling this week and indices in Asia down overnight two days running.

Here, The Independent takes a look at how the latest conflict could affect you.

Oil and gold

Despite settling a little after Monday’s initial spike of almost 10 per cent, the price of Brent oil has once more been on the march. It is up close to 4 per cent today, sitting at $80.90 at the time of writing.

Opec has raised the amount of oil it is producing from next month to counteract the effects of the current situation, giving rise to hope it will be a short-term spike rather than a price shock – but that’s only if the matter is resolved quickly.

Around a fifth of the world’s oil and gas flows through the Strait of Hormuz, so if Iran keeps it closed over a prolonged period, that will have a greater impact on rising prices.

Richard Hunter, head of markets at Interactive Investor, said the attacks “unsurprisingly had a debilitating effect on many asset types”, with concern over “escalation and duration of the conflict” key to how high prices might fluctuate.

“At the eye of the storm was the potentially inflationary spike of the oil price at a time when central banks are still hoping that any further price rises could be contained. The oil price jumped by almost 9 per cent Monday, despite the announcement that Opec would be increasing production, although attacks on ships in the Strait of Hormuz have kept tensions high,” he added.

Gold, meanwhile, is another commodity which spiked on Monday – though has pulled back slightly. Even so, futures are back above $5,300 after a sharp 3.5 per cent climb this week. The precious metal is often the safe haven investors look to when uncertainty reigns in other financial markets.

Petrol, inflation and interest rates

Those numbers above are what is happening now; the knock-on effects on fuel and the economy are what come next.

First, higher oil costs naturally mean fuel will become more expensive, which is partly why Opec released additional supply to prevent the cost surging too high. However, experts have suggested that a prolonged closure of the Strait of Hormuz could quickly see oil rise to between $90-100.

Right now, though, it’s still considerably lower – though even this rise will soon feed through to petrol stations.

On a longer-term perspective, Oxford Economics’ chief global economist Ryan Sweet released a note suggesting a prolonged closure of the Strait would see oil prices stay higher for the first half of the year. “We estimate this could push up the average oil price to almost $80 per barrel in Q2 before gradually falling back to a little more than $60 towards year-end. Gas prices would rise sharply too,” he said.

Meanwhile, given the timing relative to domestic events in the UK, FairFuelUK have called on chancellor Rachel Reeves to “declare in her spring statement that fuel duty will remain frozen for the duration of her parliament and cancel any planned increases in the autumn Budget.”

Elsewhere, it’s important to note higher energy costs – not just at petrol pumps but also heating bills, production costs, everything regarding transport and more – have an inflationary impact. While UK inflation has been gradually coming down and was predicted to reach 2 per cent by spring, these events may derail that ambition. In the EU, inflation was already below 2 per cent.

Additionally, in the UK, the potential for inflationary price action means we will be far less likely to see an interest rates cut later this month as had been expected as recently as last week, with the Bank of England perhaps likely to assume a cautious stance and prolong their decision to cut until April.

Stock markets, investments and pensions

The FTSE 100 fell on Monday by 1.2 per cent, as investors started to react to weekend events. US markets started down but regained ground across the day to finish mostly flat, though futures markets once again show the S&P 500 likely to open around 1 per cent down and the Nasdaq even further in the red, around 1.4 per cent down.

It’s a similar story around Europe on Tuesday with London’s main listing down 1.2 per cent after the opening bell, and Germany’s DAX down 2 per cent. Elsewhere, France’s CAC 40, Spain’s IBEX 35, Amsterdam’s AEX and the wider Euro Stoxx 50 are all in the red to the tune of around 1.5 to 2 per cent.

Overnight in Asia, almost all the major nations saw their primary index drop for a second day – Australia, Japan, Hong Kong, South Korea, India and Vietnam are all in the red, some of which have already finished their trading day at the time of writing.

Looking more specifically at who has been impacted, airlines were naturally been hit hard on Monday. IAG, which owns British Airways, fell more than 5 per cent – one the biggest fallers in the FTSE 100. Banks, hotel-owning firms and events companies were also down – while, perhaps unsurprisingly, the likes of weapons manufacturer BAE Systems was one of the few risers on the day.

It all means that people with even diverse investments might be seeing dips at the start of this week, be they in stocks and shares ISAs, workplace pensions or SIPPs.

Generally speaking, while levels of pensions may rise and fall in accordance with market events, if you are not close to retirement age, it’s not usually something experts say you should be unduly concerned about to the extent of panic-trading, which can harm longer-term gains.