The price of oil climbed above $111 a barrel on Tuesday as mounting anxiety over stalled diplomatic efforts in the Gulf pushed energy markets higher and left equities treading water.
Brent crude gained 1.6 per cent to $111.57 in early Asian trading, extending a rally that has seen the benchmark surge more than 50 per cent since Iran’s effective blockade of the Strait of Hormuz, the chokepoint through which roughly a fifth of the world’s oil and liquefied natural gas once flowed freely.
The immediate catalyst was Tehran’s rejection of a US peace proposal on Monday. Iran instead issued its own ten-point counter-plan, relayed through Pakistan, according to state media. Washington’s deadline for agreement expires at 1am UK time on Wednesday, and President Trump has made no secret of the consequences, warning that failure to reach a deal would see Iranian infrastructure reduced to rubble.
For businesses already grappling with elevated input costs, the prospect of a further escalation is deeply unwelcome. The International Energy Agency has described the strait’s closure as the most severe supply disruption in the history of the global oil market, with Brent futures touching nearly $120 a barrel last month when regional energy assets came under attack.
Some commodity analysts have gone further still, warning that a prolonged conflict could drive prices as high as $200 a barrel, a scenario that would dwarf the energy shocks of the 1970s and inflict serious damage on margins across transport, manufacturing and retail.
Stock markets reflected the uncertainty. The FTSE 100, reopening after the Easter break, was effectively flat at 10,425, whilst bourses in Frankfurt and Paris managed only modest gains. In Tokyo, the Nikkei closed barely changed.
Vasu Menon, managing director of investment strategy at OCBC in Singapore, captured the prevailing mood, noting that any US strikes on Iranian power infrastructure would represent a marked escalation, raising the spectre of retaliatory action against Gulf energy facilities.
For UK firms with exposure to global supply chains, the next 24 hours could prove decisive. A deal would offer some relief to energy markets; a breakdown in talks would almost certainly send oil prices sharply higher and deepen the squeeze on an already stretched global economy.
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Oil price surges past $111 as Strait of Hormuz deadline looms