Oil surges and stock markets fall after strikes in Iran – what does it mean for your money and pension?
The Office for Budget Responsibility (OBR) has warned that the situation in Iran could have a “significant impact” on economies around the world with the impact of the ongoing conflict set to hit people’s finances.
The warnings comes after the US and Israel launched strikes on Iran, sparking widespread conflict across the Middle East, with a major gas plant shut in Qatar and the US appearing set to move navy ships into the key shipping route, the Strait of Hormuz.
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 hugely 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 almost $84, an increase of close to a fifth (18.5 per cent) this week.
That could 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 sharply this week and indices in Asia down overnight three days running.
Here, The Independent takes a look at how the latest conflict could affect you.
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 by 3 per cent on Wednesday, sitting at $83.90 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 since. It remains a little under $5,200 after an 18 per cent climb this year so far. The precious metal is often the safe haven investors look to when uncertainty reigns in other financial markets.
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.
