London’s FTSE 100 Index experienced a significant downturn on Monday, mirroring global market anxieties as oil prices surged past $100 a barrel for the first time in nearly four years.
The UK’s blue-chip share index dropped 1.7% upon opening, shedding 181 points to reach 10103.71, extending losses from the previous week amid the escalating Middle East conflict.
Benchmark Brent crude soared by 16%, trading above $107 a barrel, and at one point touched nearly $120 – levels not witnessed since the summer of 2022. This dramatic rise is attributed to a mounting supply crisis stemming from the Iran war.
The conflict has intensified following Iran’s appointment of the late supreme leader’s son and a hardliner, with the nation now targeting regional energy infrastructure and obstructing the vital Strait of Hormuz shipping route, which carries a fifth of the world’s oil.
Stock markets have slumped in response, with European indices also heavily in the red as Germany’s Dax and the Cac 40 in France both dropped 2.6%.
This followed big declines in Asia overnight as Japan’s Nikkei 225 dropped 5% and the Australian market saw its worst single day drop for nearly a year, down 3%.
Chancellor Rachel Reeves is expected to join a virtual emergency meeting of G7 finance ministers on Monday afternoon to discuss the crisis, with reports suggesting they will look at a possible joint release of petroleum from reserves co-ordinated by the International Energy Agency to help tackle the surge in oil prices.
Chris Beauchamp, chief market analyst at online trading and investing platform IG, said: “The market is now facing its biggest crisis since Liberation Day, and arguably since Covid.
“The hubris of the US move on Venezuela has been followed by nemesis in its attack on Iran, and the election of a hardliner as Iran’s supreme leader just makes a ceasefire less likely.”
He said: “Stock markets have raced to catch up to all the news, but we are now looking at a vastly increased chance of a US and global recession as inflation surges.
“While a co-ordinated release of oil reserves provides temporary relief, it is a limited response, and is dwarfed by the loss of oil output from the Hormuz closure and the shutdown of production in the region.”
Oil prices are now around 60% higher than they were when the war started.
The cost of crude can have a significant effect on wholesale fuel prices, which is sending costs at the petrol pumps sharply higher.
Think tank the Energy and Climate Intelligence Unit said its analysis of the historic link between oil and fuel prices shows oil trading at 100 dollars a barrel results in petrol prices of about 150p per litre, while oil hitting 120 dollars a barrel means petrol prices of about 170p per litre.
The RAC said the average price of a litre of petrol at UK forecourts was 137.5p on Sunday after rising nearly 5p since February 28 when the conflict in the Middle East started.
Average diesel prices were up almost 9p over the same period to 151p.
There are also worries over the impact on energy prices in the UK, with wholesale global prices likewise having soared as Qatar’s state-backed energy company QatarEnergy having halted production of liquified natural gas because of attacks on its facilities, with Kuwait following suit.
Wholesale gas prices feed through into electricity prices and how much it costs to heat people’s homes.
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