Oil, natural gas, and borrowing costs rise amid escalating tension in the Middle East
Oil prices have surged as the conflict between the US and Iran deepens in the Gulf.
With growing signs that the conflict in the Middle East will not be resolved quickly and the effective closure of the Strait of Hormuz, oil prices have reached $105 per barrel, triggering concerns over inflation and borrowing costs.
Increase in Oil and Natural Gas Prices
The intensification of the conflict between the US and Iran in the Gulf region has caused crude oil and natural gas costs to rise sharply. Brent crude climbed back above $100 on Wednesday and continued its upward trend.
The wartime environment has led to the effective closure of the Strait of Hormuz, preventing oil and natural gas shipments from the Gulf from reaching global markets.
Global Borrowing Costs Surge
Long-term borrowing costs in the US and the UK have jumped to their highest levels in recent years.
In the UK, 10-year gilt yields reached their highest level since 2007, while 20- and 30-year bonds hit rates not seen since 1998.
Inflation and Crisis Concerns in Markets
Speaking at the Republican Party convention in Texas, President Trump stated that he does not expect the conflict to end before the mid-term elections in November.
Market analysts note that rising energy and borrowing costs are putting pressure on financial markets, while experts warn that the increase in energy prices could negatively impact the global economy.
Developments in the Wholesale Natural Gas Market
Natural gas prices rose rapidly in wholesale markets, exceeding 200 pence per therm in the UK for the first time since late 2022.
Storage levels in Europe remaining well below normal for this time of year and the necessity to refill reserves ahead of winter played a significant role in the price increases.
Implications for Consumers and Expert Warnings
Although consumers in the UK are protected against short-term wholesale gas market volatility by the Ofgem price cap, households could face higher bills if the high prices persist.
While public finances are under pressure, the increase in bond yields not only raises the government's borrowing costs but can also directly affect the rates of financial products such as fixed-rate mortgages.