Oil price climbs 3% as Iran and Israel escalate attacks

Oil prices rose sharply after Iran launched a new wave of attacks on Israeli and US bases, intensifying concerns about disruption to energy supplies from the Middle East.

Brent crude (BZ=F) futures rose 3.2% to $83.98 a barrel, while West Texas Intermediate (CL=F) climbed 3.9% to $77.56 at the time of writing.

The gains followed warnings from Iran that the US would “bitterly regret” torpedoing an Iranian warship in the Indian Ocean. Israel meanwhile said it had begun a “large-scale” attack on Tehran, adding to fears of a widening regional conflict.

Analysts at Deutsche Bank said oil (BZ=F, CL=F) was rising because there were no signs of de-escalation in the conflict, telling clients: “That comes as the IRGC said they would intensify and expand strikes in the coming days, while the US confirmed it had sunk an Iranian warship.”

Read more: Stocks fall and oil rises as Iran and Israel launch fresh wave of attacks

“There was also little clarity over the war’s potential length, with US defense secretary Pete Hegseth saying “it could be six, it could be eight, it could be three” weeks. There’s also uncertainty on when shipping will resume through the Strait of Hormuz, and we’ve seen signs of oil importers beginning to adjust behaviour.”

Prices were also supported after China told its largest oil (BZ=F, CL=F) refiners to suspend exports of diesel and gasoline, according to Bloomberg News.

Gold futures (GC=F) rose 0.6% to $5,165.50 a troy ounce, while spot prices were muted at $5,146.27 at the time of writing.

“I think this crisis is something that supports gold (GC=F) prices in the long run. But the uncertainty surrounding the war means we will continue to see heightened volatility until we see signs that we’ve reached peak escalation,” said Kyle Rodda, a senior financial market analyst at Capital.com.

Read more: Should you invest in gold?

Bullion, traditionally viewed as a safe-haven asset, has risen about 20% so far this year, notching successive record highs amid heightened global political and economic uncertainty.

“The inflationary impact of the Middle East conflict, via sharply higher energy prices, could reinforce expectations of higher interest rates for longer — a headwind for non-yielding assets such as gold,” ING analysts said in a note.

“However, elevated geopolitical uncertainty continues to support a risk premium, helping to underpin prices despite the challenging rates backdrop,” they added.

The pound was lower against the dollar, down 0.4% to $1.3318 and muted versus the euro, trading at €1.1491.

The US dollar index (DX-Y.NYB), which measures the currency against a basket of six major peers, rose to 99.13.

Sterling has faced selling pressure amid concerns that the UK economy could slide into stagflation as higher energy prices drive inflation while economic growth and employment remain weak.

Interest rates in the UK could be pushed back above 4% if the conflict in the Middle East leads to a sustained rise in oil (BZ=F, CL=F) and gas (NG=F) prices, an economic think tank has warned.

Stocks: Create your watchlist and portfolio

The National Institute of Economic and Social Research (NIESR) said the Bank of England would have to contend with a “shock” to energy costs which could “cause problems for Rachel Reeves”.

In its February economic outlook, NIESR had expected the BoE to cut interest rates twice this year from the current 3.75% level to around 3.25%.

Its latest analysis suggests policymakers could instead be forced to push borrowing costs back above 4%.

Ben Zaranko, from the Institute for Fiscal Studies, also warned that higher interest rates may be necessary to keep inflation in check.

“The Bank of England will have to contend with a shock to global energy prices, with the question of persistence hanging over their heads.”

Zaranko said he would not “rule out” a rate increase to 4% as the Bank of England’s next move.

He added: “In the short term, what we might see is rather than rates go up it might just mean rate cuts we might otherwise have experienced don’t happen.”

In equities, the FTSE 100 (^FTSE) was lower on Thursday morning, down 0.3% to trade at 10,539 points. For more details on market movements, check our live coverage here.

Download the Yahoo Finance app, available for Apple and Android.