The recent missile exchanges between Israel and Iran briefly rattled global markets, driving Brent crude oil prices up to over $78 a barrel before settling back around $74.50—still $10 higher than a month ago. Although oil prices remain well below the peaks seen after Russia’s 2022 invasion of Ukraine, the latest conflict raises concerns about rising energy costs worldwide, including in the UK. While short-term effects may be limited, prolonged instability could push up petrol prices, with experts estimating a $10 increase in oil could add around 7p per litre at the pump. Additionally, energy costs ripple through supply chains, potentially impacting food, manufacturing, and transportation costs, though these effects typically take time to materialize.

The broader impact depends on how long the conflict lasts and whether it expands to disrupt oil shipments through the Strait of Hormuz—a critical route for about 20% of the world’s oil. If shipping remains unaffected, prices are unlikely to remain high, particularly since global oil producers have capacity to boost supply. Still, the tension adds to economic uncertainty at a time of already fragile global conditions. According to Allianz’s Mohammed El-Erian, this conflict represents another destabilizing shock to the global economic order. If oil prices were to climb past $100 again, it could raise inflation in developed countries by 1%, complicating efforts to cut interest rates. However, some analysts believe this spike may be short-lived, depending on whether diplomatic efforts succeed in preventing wider escalation.