Global oil prices soar after Israel attacks Iran
Global oil prices jumped after Israel said it had struck Iran, in a dramatic escalation of tensions in the Middle East.Benchmark oil contracts Brent Crude and Nymex light sweet were up by more than 10% after the news emerged.Traders are concerned that a conflict between Iran and Israel could disrupt supplies coming from the energy-rich region.The cost of crude oil affects everything from the price of food at the supermarket to how much it costs to fill up your car.
Analysts have told the BBC that energy traders will now be watching to see whether Iran retaliates in the coming days."It's an explosive situation, albeit one that could be defused quickly as we saw in April and October last year, when Israel and Iran struck each other directly," Vandana Hari of Vandana Insights told the BBC."It could also spiral out into a bigger war that disrupts Mideast oil supply," she added.In an extreme scenario, Iran could disrupt supplies of millions of barrels of oil a day if it targets infrastructure or shipping in the Strait of Hormuz.The strait is one of the world's most important shipping routes, with about a fifth of the world's oil passing through it.At any one time, there are several dozen tankers on their way to the Strait of Hormuz, or leaving it, as major oil and gas producers in the Middle East and their customers transport energy from the region.Bounded to the north by Iran and to the south by Oman and the United Arab Emirates (UAE), the Strait of Hormuz connects the Gulf with the Arabian Sea."What we see now is very initial risk-on reaction. But over the next day or two, the market will need to factor in where this could escalate to," Saul Kavonic, head of energy research at MST Financial said.Additional reporting by Katie Silver
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She has to fund that by cutting spending or taxing something else. JP Morgan and Capital Economics both believe that higher borrowing costs and a weaker economy will force Reeves to raise taxes by more than £20bn in the autumn. Simon French, chief economist at Panmure Liberum, argues that there may be a silver lining for a Chancellor looking for political cover for another tax raid. 'A sustained rise in oil prices will raise inflation in the second half of the year making it harder for the Bank of England to cut rates,' says French. 'But for the Treasury the challenges are more nuanced. Any hit to growth will make the fiscal challenges more acute, albeit politically it becomes easier to blame external conditions for tough fiscal choices in the autumn.' Of course, there are factors pulling in the opposite direction, including a decision by Opec in March to pump more than 2m barrels of oil back into the market over the next 18 months. Oxley at Capital Economics says this should provide some relief, with faster supply increases in May and June suggesting 'more supply is likely to be forthcoming' in the coming months. However, he warns the outlook remains bleak. 'To the extent to which oil prices remain elevated, this adds to inflationary pressures and headwinds for the economy,' adds Oxley. 'That's the last thing Reeves wants. She was hoping that growth could help the fiscal situation look better. But any volatility or uncertainty will be the opposite of that. 'But at least she is by no means alone. The world depends on oil. So this isn't necessarily just a problem for Rachel Reeves.' That is likely to offer little comfort for a Chancellor already under fire for her political choices, or the households who will bear the brunt of what looks like another inevitable tax raid.
