Hopes of a swift reopening of the Strait of Hormuz fade as Washington’s latest strikes leave UK SMEs counting the cost of another fuel and energy spike
The oil price has lurched higher again after the United States launched a fresh round of air strikes on Iranian missile sites and vessels Washington claims were laying mines in the Gulf, pushing the already-fragile peace process to the brink and dashing hopes of a near-term reopening of the Strait of Hormuz.
Brent crude, the international benchmark, was changing hands 3 per cent higher at around $99.16 a barrel by mid-morning in London, although that still leaves it below Friday’s close of just over $103. The bounce reverses a sharp Monday sell-off that had taken Brent to $97.76, its lowest level in more than a fortnight, as traders piled into the view that a US-Iran rapprochement was finally within touching distance.
Captain Tim Hawkins, a spokesman for US Central Command, insisted the latest action was narrow in scope. The strikes, he said on Monday, were designed to “defend our forces while using restraint during the ongoing ceasefire”. For the energy market, however, restraint is in the eye of the beholder. Iran’s negotiating team had only just touched down in Doha to thrash out an extension of the April ceasefire and a phased reopening of Hormuz when the Tomahawks flew.
A fortnight’s progress unwound in a single shift
For Britain’s small and medium-sized businesses, the timing could scarcely be worse. As Business Matters reported earlier this week, the ceasefire framework agreed in April had been quietly nudging Brent back towards double figures and easing pressure on forecourt prices for the first time since February.
Marco Rubio, the US Secretary of State, was at pains on Tuesday to insist that a deal remained on the table. “The president’s expressed his desire to make it,” he told reporters, before adding the now-familiar caveat: “He’s either going to make a good deal or no deal.” President Trump himself has described the negotiations as “proceeding nicely”, while threatening that the outcome will be “a Great Deal for all or no Deal at all”. Tehran has been marginally more emollient, with officials confirming that the two sides had “reached a conclusion on a large portion of the issues under discussion”, even if a final agreement is not yet imminent.
The market reaction in Asia and Europe tells its own story. The Nikkei 225, which had rallied 2.9 per cent on Monday to a record close of 65,158.19 on hopes of a settlement, slipped 0.3 per cent on Tuesday. China’s SSE Composite shed 0.6 per cent. In London the FTSE 100 opened 0.7 per cent firmer — a quirk of timing, given the UK and US exchanges were shut for the bank holiday on Monday and are now playing catch-up with the relief rally that lifted Germany’s Dax 2 per cent and France’s Cac 40 by 1.8 per cent.
Why Hormuz still matters to a corner shop in Croydon
The Strait of Hormuz remains, in the parlance of commodities desks, the single most important pinch-point on the planet. Roughly a fifth of the world’s seaborne oil and liquefied natural gas passes through the 21-mile-wide channel between Iran and Oman, and it has been effectively closed since late February. The International Energy Agency has described the resulting dislocation as the largest supply shock in the history of the global oil market, with cumulative Gulf supply losses now running well into ten figures of barrels.
That matters far beyond the trading floors of Geneva and Singapore. For the owner-managed engineering firm in the West Midlands, the family-run logistics operator in Felixstowe or the independent bakery in Glasgow, every dollar on a barrel of Brent feeds through to diesel, gas standing charges, packaging, and the cost of almost every shipped input. The Federation of Small Businesses has already warned that energy bills, business rates and rising employment costs are colliding to form what one chief executive described to me as a “slow-motion margin squeeze”.
The fear in Westminster is that yesterday’s modest progress on inflation is about to be reversed. Brent has risen more than 40 per cent since the start of the year, and a sustained move back above $100 would, on the Bank of England’s own modelling, push consumer prices inflation back above 4 per cent, making any further cut in Bank Rate this autumn distinctly unlikely. As Business Matters set out in its analysis of the SME impact, the cumulative drag on UK GDP from a prolonged Hormuz closure could reach £35 billion over two years.
Months, not weeks
The analyst community is, on balance, sceptical that even a comprehensive deal would deliver immediate relief. David Oxley, chief climate and commodities economist at Capital Economics, argues that although oil prices could fall back “sharply” on a credible settlement, a return to anything resembling normality is a 2027 story rather than a 2026 one.
“Oil prices would only trend lower when oil market fundamentals materially improve, which looks destined to stretch into 2027,” he said, pointing to the lingering damage at Middle Eastern production facilities and a tanker fleet that is, in physical terms, in the wrong place. “At best, it could take weeks for ships to reposition themselves. At worst, a lack of shipping could be a constraining factor for months and delay production timetables.”
June Goh, an oil analyst at Sparta Commodities, struck a similar note. “The underlying supply shortfall of 10 to 11 million barrels per day of crude oil does not go away immediately and will see markets still drawing inventories until Middle Eastern crude production is back online, which is months away,” she said.
There is also the rather awkward political subtext. Any agreement between Washington and Tehran in Doha would, by design, push the thornier question of Iran’s nuclear programme into a second phase of negotiations. According to reporting by CNBC, American officials are openly worried that Iran will use the breathing space won by an initial ceasefire to drag its feet on the nuclear file, a concern that is emboldening the more hawkish wing of Congress to demand bigger up-front concessions before any further sanctions relief.
What it means for British business
For SME owners trying to plan budgets for the second half of the year, the message from this week’s whipsaw is uncomfortable but clear. The direction of travel on oil remains down, but the journey is going to be jerky, sentiment-driven and acutely sensitive to every press release out of Doha and every drone sortie in the Gulf.
That argues for caution rather than complacency. Recent Business Matters reporting on SME cost pressures suggests that the firms emerging from this period in the strongest shape are those locking in fixed-price energy contracts where they can, stress-testing cash flow against a $110 scenario, and resisting the temptation to assume that the worst is behind them.
In Doha, the negotiating teams will be at it again tomorrow. On the trading floors of London, traders will be watching every twitch of the headline ticker. And in workshops and warehouses across the country, the slow, grinding question of how to pass on yet another round of input cost inflation to already-stretched customers will go on. As one Birmingham manufacturer put it to me this week: “We’ve been here before. We know how it ends. We just don’t know when.”
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Brent Crude jumps back to $99 as US strikes on Iran knock the wind out of peace talks