Israel’s strikes on Iran, and Iran’s response, initially caused a shudder on global financial markets.

The price of oil in particular surged, but after a weekend of missile and drone strikes between the two countries the cost of crude has fallen back.

Nevertheless, oil prices are $10 higher than they were a month ago and there are renewed fears increased energy costs could make everything – from petrol and food to holidays – more expensive around the world, including in the UK.

That is what happened after Russia invaded Ukraine three years ago, affecting people’s lives around the globe.

How much have oil prices risen?

The attacks prompted an instant reaction on the markets.

Brent Crude – the main international benchmark – rose to over $78 a barrel on Friday. Since then, it has fallen back to about $74.50, but it is still $10 higher than it was this time last month.

The price of oil rises and falls all the time in response to big geopolitical events, and the state of the global economy, so it is not a surprise to see oil prices reacting to the Israel-Iran conflict.

However, the price is far below where it was a year earlier. It is also well below the peaks seen in 2022 following Russia’s invasion of Ukraine, when it spiked to nearly $130 a barrel.

So will petrol and other prices go up?

When the wholesale oil price goes up, many people notice it first when it leads to higher petrol prices.

But more expensive energy also feeds through to higher prices for almost everything, from farming to manufacturing.

When it comes to food, higher energy costs can lead to higher prices on the shelf in many ways. It can make it more expensive to run farm machinery, to transport produce, and to process and package food.

However, that will only happen if energy prices stay high for a sustained period.

Even with petrol and diesel, rising crude prices only have a limited impact.

“A rough rule of thumb is a $10 rise in the oil price would add about 7p to the price at the pump,” says David Oxley at Capital Economics.

However, this is not just an oil story, he cautions.

Many will remember the shock to prices that followed the beginning of the Ukraine conflict. That was in large part a response to higher gas prices, Mr Oxley says.

Many of us heat our homes with gas, and in the UK electricity prices are also set in relation to the gas price.

Gas prices have also risen after last week’s attacks. But the impact will feed through to households only slowly, if at all, says Mr Oxley, given the way the market works, including the role of the regulator, in capping prices.

Could oil prices rise higher?

The current situation is “very significant and concerning”, says Richard Bronze head of geopolitics at consultancy and research firm Energy Aspects.

But that doesn’t mean it will turn out to have as big an impact as the Ukraine conflict, or even previous troubles in the Middle East.

The main questions are how long Israel and Iran remain locked in this conflict, whether other countries in the region are drawn in, and whether the US steps in to de-escalate the situation.

Above all it depends on whether we see actual disruption to shipping in the Strait of Hormuz, the waterway off Iran’s southern coast, which is the route to global markets for about a fifth of the world’s oil production.

“It’s a narrow choke point so it is a significant weak spot for global oil markets,” says Mr Bronze.

Source: BBC