Energy costs rise and stocks fall sharply as US-Iran peace is shattered | Money News

There has been a marked increase in global energy prices amid fears of a prolonged resumption to hostilities between the US and Iran.

Oil and gas costs have risen for the past two days – in the wake of attacks on shipping in the Gulf including a liquefied natural gas (LNG) tanker.

Iranian hostilities were cited by Donald Trump as the catalyst for a series of fresh US strikes on Iran on Tuesday night, attacks which prompted an Iranian response.

Iran war latest: ‘Not a thing’ Iran can do to stop more attacks

The US president later declared the ceasefire “over” at a meeting of NATO members on Wednesday, prompting markets to reflect greater risks ahead.

A barrel of Brent crude oil was trading at $79, leaving it almost 8% up on the day and 10% higher over the week but still well below the wartime peak above $120.

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UK wholesale natural gas costs for future delivery rose by 5% for a second consecutive day.

While energy shares were generally doing well, stock markets fell widely across Europe and the US.

The falls reflected concerns that renewed hostilities in the Middle East risked higher inflation, and therefore elevated central bank interest rates ahead – harming the global economy.

The premiums demanded by investors to hold the debt of Western governments also rose widely.

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Early Wednesday pricing suggested the markets were expecting another temporary setback in the ceasefire between the US and Iran following several other false starts to peace efforts in the past few months.

But statements by Mr Trump that more US strikes could happen overnight, along with further apparent Iranian threats to shut the Strait of Hormuz shipping lane again, came into sharper focus later in the trading session.

The FTSE 100 closed the day down 1.7% at 10,489. Miners – linked to fortunes for economic health – were the main losers.

In Frankfurt, the DAX and the French CAC were both trading 2.2% in the red in late trading.

At the start of this week, oil prices were trading at pre-war levels but the fate of the strait, in the longer term, is key to the cost of wholesale oil and gas costs ahead as the shipping lanes typically handle a fifth of global supplies.

The damage to shipping, including the LNG vessel, brought the safety of shipping back into the minds of investors and traders alike.

The release of global stockpiles to offset the loss of capacity from the strait has, so far, helped keep a lid on price increases as supply has been largely able to meet demand.

Data out of the US on Wednesday showed US crude inventories at their lowest level since May 1984.

Nevertheless, market analysts widely believe Mr Trump wants to end the war quickly and expect a new ceasefire soon.

Head of global macroeconomics at Oxford Economics, Ben May, said: “The deep distrust between the US and Iran meant bumps in the road were inevitable, and this feels eerily similar to the trade negotiations between the US and China during President Donald Trump’s first term, which had numerous flare-ups followed by de-escalation.

“Given this, it was always going to be hard to have strong conviction about reopening the Strait of Hormuz and the path for oil prices in the baseline forecast, leaving risks weighted to the upside in the near term.”