Oil prices surged over 2% to $78.40 per barrel after Iran seized a tanker en route to Turkey, heightening fears of increased fuel costs globally. The UK government predicts potential disruptions in the Red Sea, projecting a minimum $10 rise in crude oil prices and a 25% increase in natural gas costs. Europe faces heightened gas dependence on Gulf exports, exacerbating concerns.
The UK, specifically, anticipates a negative economic impact due to the Red Sea disturbances. This follows Iran’s seizure, framed by local media as retaliation for a previous US hijacking of the same vessel. Growing tensions in the Middle East pose a threat to UK fuel prices, potentially leading to higher inflation.
Despite this, the average UK fuel price witnessed a temporary dip, with petrol and diesel hitting 1.40 pounds per liter. The situation remains unpredictable, and drivers are cautioned about potential price volatility. Luke Jones from the AA emphasises that while pump prices may fluctuate, the current relief for consumers is notable.
Notably, this incident stands apart from attacks by Houthi rebels in the Red Sea. Capital Economics’ Caroline Bain notes the oil market’s subdued reaction to these events and the Israel-Hamas conflict. The initial fear of major oil-producing nations, including Iran and Saudi Arabia, actively engaging has diminished. Reduced oil demand, coupled with increased production from non-OPEC nations like the US, Brazil, and Guyana, lessens concerns about Middle East supply disruptions.
While the current situation suggests a limited impact on oil markets, any further escalation in Middle East tensions could prompt a more significant rise in prices, according to Bain. Overall, the complex interplay of geopolitical factors and global oil dynamics adds uncertainty to the outlook for oil prices in the near future.
