Iran war oil prices surged to their highest level in months this week, with Brent crude peaking at around $108 a barrel on Thursday, rattling equity markets and raising fresh fears over interest rate decisions in both the UK and the United States. US President Donald Trump has said he expects Tehran to seek an end to the conflict immediately after the midterm elections, but investors are not yet convinced the pressure on energy markets is about to ease.
Oil climbs sharply before a partial retreat
Brent crude, the international oil benchmark, jumped above $100 a barrel on Wednesday for the first time since July, rising close to four per cent in a single session. The move continued into Thursday, when CNBC reported Brent peaked at around $108 a barrel, while West Texas Intermediate hit more than $104. By Friday, some of those gains had unwound: Brent futures settled down 2.8% at $104.61 a barrel, though prices remain well above the levels that prevailed before the conflict escalated.
The scale of the move in crude has unsettled bond and equity markets in equal measure. Investors are watching closely for any signal from the Bank of England and the US Federal Reserve that the oil-driven inflation spike could prompt further interest rate increases. With UK growth figures and US inflation statistics both due at the end of this week, the pressure on policymakers to respond is likely to intensify.
Trump signals Iran war end after midterms
Speaking to reporters on Wednesday night, Trump said Tehran would approach Washington seeking an end to hostilities ‘immediately after the midterms.’ He added: ‘They’re desperate to try and affect the election so that we can get a nice weak group of people in there and leave them alone and let them have their nuclear weapon.’
The remarks have done little to settle market nerves. Despite Trump’s declared readiness to conclude the conflict, investors had already been bracing for a prolonged period of elevated oil prices and wider uncertainty. The question of whether a post-midterm settlement could materialise quickly enough to bring crude back down is one that markets have yet to answer with any confidence.
Iran war oil prices weigh on the FTSE 100
On the London market, the FTSE 100 has struggled to hold its footing. Neil Wilson, UK investment strategist at Saxo, said the index had failed to live up to its ‘so-called’ defensive attributes, slipping back to levels last seen in February.
Wilson said: ‘It seems UK investors have been pulling out of UK equities and rotated into fixed income. You wouldn’t know it from the bond market mind, as yields have hit multi-year highs, but investors aren’t keen to chase these stock markets much higher for now. With inflation proving so stubborn that the Fed may hike next week there’s every chance things may get choppier from here.’
His remarks capture the bind facing equity investors: rotating into bonds offers little comfort when yields are already at multi-year highs, yet the risk appetite needed to push equities higher is absent as long as oil stays elevated and rate decisions remain live.
What markets are watching next
Investor attention is shifting to the two data releases due at the end of this week. UK growth figures will offer the clearest recent picture of how the domestic economy is absorbing the oil shock, while US inflation statistics will shape expectations ahead of the Federal Reserve’s next meeting. A reading that confirms inflation remains stubborn would increase the probability of another rate rise, adding further headwinds to equity markets on both sides of the Atlantic.
In the near term, Brent crude settling at $104.61 on Friday, after touching $108 during Thursday’s session, suggests some of the panic premium has come out of the oil price, but the level remains high enough to keep the Iran war oil prices question at the centre of every market conversation heading into next week’s Fed decision.
