Brent crude oil prices have surged past $100 per barrel, dealing a significant early blow to Prime Minister Andy Burnham’s flagship cost of living programme.
The benchmark price crossed the $100 milestone on Thursday afternoon after Houthi forces, an Iran-backed militia based in Yemen, attacked two Saudi Arabian tankers over the Red Sea.
The surge in energy pricing has dragged markets back to levels last seen in March, when the US and Israel launched attacks on Iran.
The last time Brent crude traded at $100 a barrel was in late May, before a brief period of relative calm settled across the region.
President Trump’s ceasefire agreement with Iran in June had raised hopes that a broader peace deal could be struck and trade through the Strait of Hormuz could resume normally.
Trump has now issued fresh threats to Iran, warning he would hold the country “responsible” for the re-emergence of hostilities and that “major military punishment” would follow given the militia’s ties to Tehran.
US forces responded overnight with strikes on “targets including maritime capabilities” as the situation in the region deteriorated rapidly.
The Houthis launched their attacks after imposing a maritime blockade on Saudi Arabia in direct retaliation to a Saudi blockade of ports in north-western Yemen.
Iran’s Islamic Revolutionary Guard Corps has also targeted ships passing through the Strait of Hormuz, a waterway critical to over a fifth of the world’s oil and gas supplies.
European natural gas futures prices jumped sharply to €62/MWh from a previous low of €41 in June, a move that could hurt UK households significantly towards the end of the year.
UK gilts were also sold off heavily, pushing government borrowing costs higher, with short-term gilt yields now suggesting markets are pricing in nearly three interest rate hikes over the next two years.
Burnham’s opening days at Number 10 had focused squarely on reducing household bills, including a proposal to strip VAT from energy bills that could cut around £45 from the energy price cap from October.
He followed that announcement with plans to cut business rates for pubs and cap bus fares at £2, moves that have raised further questions among economists and politicians about how the package would be funded.
Economists have suggested the measures could take around 0.2 percentage points off CPI inflation later this year, although price growth is still expected to climb past 3.5 per cent.
City analysts have warned that household costs now largely depend on how events in the Middle East unfold over the coming weeks and months.
Before leaving Downing Street, Sir Keir Starmer urged his successor to take diplomacy seriously, warning that international affairs would directly affect people’s bills.