Any extended rise in energy prices raises the possibility of higher petrol prices and increased gas and electricity bills, pushing up the rate of inflation.
So far this year, weaker demand from China and ample supply from Saudi Arabia have acted to hold down oil prices.
The reaction in oil markets has, so far, been far more muted than, for example, to Russia’s invasion of Ukraine in 2022.
But the escalation of violence in the Middle East and threat of further action is now stalking the markets.
Of particular concern is whether any escalation could block the Straits of Hormuz, through which a third of oil tanker traffic and a fifth of LNG frozen gas has to pass.
Since Russia’s war with Ukraine began, the world has become more dependent on shipped frozen gas in LNG tankers.
Even if it is Asia that is most physically dependent on the flow of oil and gas out of the Persian Gulf, the immediate price impact of such developments would be significant.
Bank of England governor Andrew Bailey warned on Thursday of the “very serious” potential impact and that he was watching developments “extremely closely”.
All this could come at the very moment the world’s central bankers declared a quiet victory over the three-year inflation shock from the pandemic and Ukraine war.
It may help explain why G7 leaders are trying to moderate the expected response from Israel to Iran’s attack.
Source link
