Oil prices surge further and markets slump as Middle East war intensifies

Oil prices have risen further as the Middle East war extended into a fourth day, sending stock markets tumbling across the UK and Europe on fears of a prolonged conflict.

Brent crude rose by another 4% on Tuesday to stand at a one-year high of nearly 81 US dollars a barrel, after Iran took action to block a crucial shipping route for crude tankers, while London’s FTSE 100 Index fell sharply lower, down more than 2% in early trading.

An Iranian official has reportedly warned tankers on the Strait of Hormuz that no ships would be allowed to pass through, as part of its response to a US and Israel military campaign against Iran, which has continued since an initial strike killed Supreme Leader Ayatollah Ali Khamenei on Saturday.

Oil had soared by as much as 13% at one stage on Monday, rising above 82 dollars a barrel, before paring back.

In financial markets, the FTSE 100 tumbled 2.2% or 240.2 points to 10539.9, after a 1.2% drop on Monday, with similar declines across Europe as the Dax in Germany dropped 3% and France’s Cac 40 was 1.8% lower on Tuesday.

It comes after US President Donald Trump’s warning that military operations against Iran could take “far longer” than its initial projection of a four-to-five-week timeframe.

Airline stocks continued to take a hammering because of flight disruption caused by the conflict, while banks were also lower on fears over a knock-on impact to the economy.

Susannah Streeter, chief investment strategist at the Wealth Club, said: “Downbeat sentiment is pervading equity markets as the conflict in the Middle East escalates, with global repercussions.

“London’s FTSE 100 has fallen deeper into the red as the war widens and companies assess the impact of severe disruption across the region on their operations.”

Richard Hunter, head of markets at Interactive Investor, said the easing in the pace of the oil price rally suggests “a more sanguine approach to the implications of the US/Iran situation”.

“Oil price spikes usually follow conflict outbreaks, but the fact remains that escalation and duration is more of a concern than the immediate outlook,” he said.

Iran’s threats over the Strait of Hormuz has sparked fears that oil prices will continue rising sharply, with the route used by tankers carrying about one fifth of the world’s oil supplies and seaborne gas.

Gas prices on Monday also surged at the fastest pace since the outbreak of war in Ukraine, up 52%, after Qatar halted production of liquified natural gas after attacks by Iran and were up around another 20% on Tuesday.

Concerns have mounted over sharp rises in the cost of petrol and domestic energy bills, which could take their toll on UK households in the coming months.

The impact on fuel prices has already been acute, and the blockage of the Strait of Hormuz caused the cost of hiring an oil supertanker to carry crude from the Middle East to China to reach an all-time high on Monday of nearly £300,000.

Ms Streeter said: “The resilience of global shipping is once again being tested and, as the crisis widens, more carriers are halting transits through the Red Sea.

“This will add significant time and cost to journeys, risking further snarls in supply chains.”