Oil prices saw a significant increase on Friday, with Brent crude closing at $74.23 a barrel, marking a rise of over 7% from the previous day. Despite this jump, prices remain more than 10% lower than they were at the same time last year and are far below the highs seen in early 2022, when crude prices soared above $100 a barrel following Russia’s invasion of Ukraine.
Global stock markets reacted negatively to the news. In Asia, Japan’s Nikkei index fell by 0.9%, and the UK’s FTSE 100 dropped by 0.39%. The downward trend continued in the United States, where the Dow Jones Industrial Average decreased by 1.79%, and the S&P 500 was down by 0.69%.
In contrast, investors turned to "safe haven" assets like gold and the Swiss franc, which gained value amid the market uncertainty. The price of gold reached its highest level in nearly two months, climbing 1.2% to $3,423.30 an ounce.
The recent spike in oil prices comes in the wake of heightened tensions in the Middle East. Following an Israeli attack, Iran reportedly launched around 100 drones towards Israel. Analysts are closely monitoring the situation, as the conflict could escalate further. Vandana Hari from Vanda Insights noted that while the situation is volatile, it could also de-escalate quickly, as seen in previous encounters between Israel and Iran.
If the conflict leads to attacks on Iran’s oil production and export facilities, analysts at Capital Economics warn that Brent crude prices could surge to between $80 and $100 a barrel. However, they also believe that such price increases would prompt other oil producers to increase their output, which could limit the overall rise in prices and its impact on inflation.
In the UK, the RAC’s Rod Dennis mentioned that it’s too early to determine how the rise in oil prices will affect petrol costs. He pointed out that two main factors will play a role: whether the higher wholesale prices persist and how much margin retailers choose to apply.