LONDON: Global oil and gas prices have surged as renewed fighting between the United States and Iran threatens energy supplies through the Persian Gulf, raising concerns over inflation, economic growth and household costs ahead of winter.
European natural gas futures climbed to a three-year high, while crude oil prices moved closer to $100 a barrel as tensions around the Strait of Hormuz intensified. The escalation has also pushed European diesel and gasoline prices sharply higher, adding to inflationary pressures across the region.
Brent crude futures rose to around $95 a barrel on Wednesday, bringing their weekly increase to approximately 6.6%. European diesel futures had gained around 5% in each of the previous three trading sessions, while natural gas prices were up about 11% this week.
The renewed conflict comes at a particularly sensitive time for Europe, where natural gas inventories remain relatively low ahead of the winter heating season. European gas storage facilities are currently around 65% full, the lowest seasonal level in available data going back to 2009.
French Foreign Minister Jean-Noel Barrot highlighted the economic risks posed by higher energy costs, warning that rising oil prices could translate into weaker growth, lower tax revenues and reduced fiscal flexibility.
Hormuz Disruption Raises Supply Concerns
The latest escalation has raised fresh concerns over energy shipments through the Strait of Hormuz, a critical global maritime corridor through which roughly one-fifth of the world’s oil and LNG supplies traditionally pass.
US forces have intensified attacks on Iranian infrastructure, while Iran has retaliated with missile and drone strikes against US-linked targets across the Middle East. Further escalation could put additional pressure on energy flows from the Persian Gulf.
Alternative pipelines and other supply routes have so far helped prevent a full-scale global oil supply crisis. However, a prolonged disruption could have a significantly greater impact on crude and refined fuel markets.
Energy markets are also facing pressure from disruptions elsewhere. Ukrainian drone attacks on Russian refineries have reduced refining capacity and tightened supplies of products such as diesel. At the same time, the conflict in the Middle East has reduced refined fuel shipments from the Persian Gulf, while some refineries have faced operational difficulties.
Diesel and Petrol Prices Emerging as Key Risk
Market analysts are increasingly focusing on refined fuel prices rather than crude oil alone, as shortages of gasoline and diesel could have a more direct impact on consumers and businesses.
Thomas Pugh, chief economist at RSM UK, said diesel prices were effectively reflecting oil prices of around $140 a barrel, highlighting the additional pressure created by tight refined-fuel supplies.
The combination of higher crude prices, rising diesel and gasoline costs and elevated natural gas prices could further increase transportation, manufacturing and household expenses, complicating efforts by governments and central banks to contain inflation.
Bond Yields Rise as Inflation Fears Intensify
The energy shock is also contributing to a rise in global bond yields as investors reassess inflation and interest-rate expectations.
The yield on the 10-year US Treasury rose to around 4.81%, its highest level since late 2023, while Japan’s 10-year government bond yield reached 3%, the highest level this century.
Higher government borrowing and spending in major economies, combined with strong demand for capital to finance investments including artificial intelligence, are already putting upward pressure on borrowing costs.
Economists warn that a sustained energy-price shock could further complicate monetary policy decisions, particularly in Europe.
“High energy prices have started to become more relevant for the inflation outlook,” said Florence Schmit, senior energy strategist at Rabobank.
Winter Outlook Comes Under Pressure
With Europe entering the winter season with relatively low gas inventories, prolonged disruptions to global energy supplies could increase competition for LNG cargoes and push prices even higher.
Claudia Kemfert, head of the Department of Energy, Transport and Environment at the German Institute for Economic Research, described the energy shock as an additional burden on consumers and economies, warning that it could fuel inflation, weaken purchasing power and economic growth, and increase uncertainty.
The developments underscore the vulnerability of global energy markets to geopolitical disruptions, with crude oil, refined fuels and natural gas all facing potential supply constraints as winter approaches.
