Brent crude oil has climbed above $100 a barrel for the first time since late July as escalating military attacks between the United States and Iran intensified concerns about energy supplies and the impact of the conflict on the global economy.
The benchmark Brent crude contract rose to $100.19 a barrel on Wednesday, its highest level since July 24. The latest surge came as fighting across the Middle East continued to weigh on investor confidence and raised fears that prolonged disruption to oil supplies could fuel another wave of inflation.
The increase in oil prices followed a fresh escalation in hostilities between Washington and Tehran. The United States military attacked five Iranian crude oil carriers overnight, while Iran responded with missile attacks targeting US forces in Jordan and further attacks on shipping.
US Secretary of State Marco Rubio said Washington would continue targeting Iranian oil tankers in response to what he described as attempted attacks on US warships.
The growing conflict has unsettled financial markets, with investors increasingly concerned about the economic consequences of higher energy costs.
Wall Street’s three major indexes all recorded modest losses, with the S&P 500, Dow Jones Industrial Average and Nasdaq Composite coming under pressure. European stocks also fell to one-week lows, led by declines in industrial and banking shares.
Canadian blue-chip stock futures edged lower, while Asian markets traded unevenly. Technology stocks in Asia, however, continued to recover from their July lows, supported by strong investor interest in the artificial intelligence sector.
Market analysts said the rise in crude prices was weakening investor appetite for risk as traders assessed the possibility of a prolonged conflict.
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Ipek Ozkardeskaya, senior analyst at Swissquote, said optimism that had surrounded the possibility of a peace agreement during the summer was beginning to fade as the conflict entered September.
The surge above $100 has also renewed debate about how high oil prices would need to rise before they begin to significantly weaken global economic activity.
Manish Kabra, a multi-asset strategist at Societe Generale, described $100 a barrel as more of a psychological threshold than an immediate economic danger. He said crude prices would likely need to reach around $150 a barrel before creating a major reduction in demand.
However, Kabra warned that higher diesel prices could feed into inflation, particularly through the services sector, increasing pressure on consumers and businesses.
The latest Brent crude oil-price rally has also complicated the outlook for central banks, which are attempting to balance economic growth with persistent inflation risks.
Higher energy prices can raise transportation, production and operating costs, potentially pushing consumer prices higher. That could make central banks more cautious about cutting interest rates or force them to consider tighter monetary policies.
The European Central Bank is expected to announce its latest interest-rate decision on Thursday, while the US Federal Reserve is scheduled to meet next week to determine its own monetary policy direction.
Bond markets have already reflected growing concerns about inflation. Government bond yields have risen in recent weeks as traders increasingly anticipate that central banks could maintain or adopt tighter monetary policies if energy prices continue to climb.
The latest developments come after the United States and Iran resumed attacks against each other at the end of August. Since then, benchmark government bonds in the United States, Japan and several European countries have experienced significant increases in yields, in some cases reaching levels not seen for decades.
The rise in borrowing costs could put additional pressure on governments, companies and financial institutions, particularly if higher oil prices persist for an extended period.
For investors, the immediate focus remains on the trajectory of the Iran-US conflict, the security of key shipping routes and whether the disruption to oil supplies will intensify.
A prolonged escalation could keep Brent crude prices elevated and increase the risk of broader inflationary pressure, while any meaningful de-escalation could ease some of the pressure currently weighing on global markets.
Al Jazeera
