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Oil prices fall as Iran scales back attacks
Oil and gold prices fell after Iranian authorities appeared to downplay reports of an attack from Israel.
Brent crude, the international benchmark, fell after briefly surging to more than US$90 a barrel after reports of the attacks emerged.
Gold briefly neared record highs before settling below $2,400 an ounce.
There are fears the worsening conflict in the Middle East could disrupt oil supplies.
Investors have been closely watching Israel’s reaction to Iran’s direct drone and missile strikes over the weekend.
Oil prices have jumped by 3.5% initially. But Brent later fell back to about $87 a barrel after Iranian state media claimed that there was “no damage” in the Isfahan province where there were reports of explosions.
A sudden and continuous increase in oil prices risks increasing inflation. Countries are heavily dependent on the commodity, which is used to produce fuels such as petrol and diesel.
Fuel and energy prices have been the main driver behind the higher cost of living around the world in recent years.
Randeep Somel, fund manager at M&G Investment Management, told the BBC’s Today programme: “The concern for the market is mainly inflation, that this will actually add to inflation.”
Although inflation is slowing, in the UK it is still above the Bank of England’s 2% target and some economists predict that interest rate cuts may not happen until the summer or later in the year.
“In the UK, the inflation rate is still around 3.2% – still a long way off target – and it is a bit of a concern for policymakers,” Mr Somel said.
“It is good to see that this has not escalated further and hopefully the disruption to the market is short-lived.”
Brent prices are well below levels reached after Russia invaded Ukraine in February 2022 when several major economies imposed sanctions on the oil-producing nation.
Oil hit $125 a barrel in the following weeks, leading to a sustained period of higher household energy bills.
Escalating tensions in the Middle East have led to concerns about whether shipments through the Strait of Hormuz between Oman and Iran will be affected.
It is an important shipping route, as about 20% of the world’s total oil supply passes through it.
Members of the OPEC oil-producing cartel – Saudi Arabia, Iran, the UAE, Kuwait and Iraq – send most of the oil they export through the strait.
Iran is the world’s seventh largest oil producer, according to the US Energy Information Administration, and the third largest member of OPEC.
The initial rise in oil prices was a “sudden reaction to fears of renewed war between Israel and Iran,” said energy market expert Vandana Hari of Vanda Insights.
“What recent events underline is the growing fragility and uncertainty of the Middle East situation,” he added.
Stock markets are mixed as investors react to recent events.
In the US, the Dow Jones Industrial Average was about 0.5% higher in midday trading, while the S&P 500 fell 0.5% and the Nasdaq was down 1.3%.
In the UK, the FTSE 100 share index closed 0.2% higher while the FTSE 250 ended down 0.3%.
In Asia, Japan’s Nikkei 225 index fell 2.7%, while Hong Kong’s Hang Seng fell 0.9%.
