It is becoming increasingly common for geopolitical incidents to have a direct impact on people’s finances, and this looks certain to happen again after the US and Israel launched strikes on Iran, sparking conflict across the Middle East.
The latest escalation comes after a year in which US president Donald Trump instigated tariffs on nations around the world during the prolonged tension between Iran and Israel. Along with the invasion by Russia on Ukraine – which affected commodity prices – these large-scale cases of conflict are having a real impact on people’s pockets across the globe.
In the face of the most recent developments, with Iran launching strikes on US and UK ships in the Strait of Hormuz, the price of oil has risen nearly 10 per cent to its highest level in around a year.
That will have significant knock-on effects in terms of inflation, interest rates and commodity prices if the attacks are prolonged. Stock markets are already reacting to the uncertainty with the FTSE 100 falling and indices in Asia down overnight.
Here, The Independent takes a look at how the latest conflict could affect you.
Oil and gold
Despite having dropped off slightly in the past couple of hours, the price of Brent oil is still up at close to $79 a barrel.
However, Opec has raised the amount of oil it is producing from next month to counteract the effects of the current situation, meaning it will be a short-term spike rather than a price shock – that’s if the matter is resolved quickly.
Around a fifth of the world’s oil and gas flows through the Strait of Hormuz, so if Iran keeps it closed over a prolonged period, that will have a greater impact on rising prices.
Richard Hunter, head of markets at Interactive Investor, said the attacks “unsurprisingly had a debilitating effect on many asset types”, with concern over “escalation and duration of the conflict” key to how high prices might fluctuate.
“At the eye of the storm was the potentially inflationary spike of the oil price at a time when central banks are still hoping that any further price rises could be contained. The oil price jumped by almost 9 per cent overnight, despite the announcement that Opec would be increasing production, although attacks on ships in the Strait of Hormuz have kept tensions high.”
Gold, meanwhile, is another commodity on the march upwards - futures are back above $5,400 after a sharp 3 per cent climb today. The precious metal is often the safe haven investors look to when uncertainty reigns in other financial markets.
Petrol, inflation and interest rates
Those numbers above are what is happening now; the knock-on effects on fuel and the economy are what come next.
First, higher oil costs naturally mean fuel will become more expensive, which is partly why Opec released additional supply to prevent the cost surging too high. However, experts have suggested that a prolonged closure of the Strait of Hormuz could quickly see oil rise to between $90-100.
Right now, though, it’s still considerably lower – though even this rise will soon feed through to petrol stations, says Susannah Streeter, chief investment strategist at Wealth Club.
“It will come as a blow to households, who will see prices at the pumps rise significantly. It also adds another layer of uncertainty over future interest rate cuts, given that higher fuel prices will put upward pressure on headline inflation,” she said.
Meanwhile, given the timing relative to domestic events in the UK, FairFuelUK have called on chancellor Rachel Reeves to “declare in her spring statement that fuel duty will remain frozen for the duration of her parliament and cancel any planned increases in the autumn Budget.”
As noted by Ms Streeter, higher energy costs – not just at petrol pumps but also heating bills, production costs, everything regarding transport and more – have an inflationary impact. While UK inflation has been gradually coming down and was predicted to reach 2 per cent by spring, these events may derail that ambition. In the EU, inflation was already below 2 per cent.
Additionally, in the UK, the potential for inflationary price action means we will be far less likely to see an interest rates cut later this month as had been expected as recently as last week, with the Bank of England perhaps likely to assume a cautious stance and prolong their decision to cut until April.
Stock markets, investments and pensions
The FTSE 100 has opened trading on Monday down around 0.6 per cent, as investors start to react to weekend events.
US futures markets show the S&P 500 likely to open around 1.5 per cent down and the Nasdaq even further in the red, around 1.9 per cent down. Some European markets are even stronger-hit: France’s CAC 40 sits at -1.8 per cent, Germany’s DAX is at -2.2 per cent and Spain’s Ibex 35 sits at -3.0 per cent. The Euro Stoxx 50, which includes some of the biggest firms from the Netherlands and Italy as well as those aforementioned three, is at -2.6 per cent in early trading.
Overnight in Asia, almost all the major nations saw their primary index drop – Saudi, Japan, Hong Kong, South Korea, India and Vietnam are all in the red, some of which have already finished their trading day at the time of writing.
Looking more specifically at where it has been impacted, airlines have naturally been hit hard. IAG, which owns British Airways, is down 9 per cent – the biggest faller in the FTSE 100. Banks, hotel-owning firms and events companies are also down – while, perhaps unsurprisingly, the likes of weapons manufacturer BAE Systems is the highest riser on the day.
Bitcoin is also down to around $66,000, further highlighting it as a volatile asset class than a safe haven value store.
It all means that people with even diverse investments might be seeing dips at the start of this week, be they in stocks and shares ISAs, workplace pensions or SIPPs.
Generally speaking, while levels of pensions may rise and fall in accordance with market events, if you are not close to retirement age, it’s not usually something experts say you should be unduly concerned about to the extent of panic-trading, which can harm longer-term gains.
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