Oil prices hit fresh highs as Middle East crisis mounts

Oil prices breached $90 a barrel on Friday, after Qatar warned that Gulf production could grind to halt within days amid spiralling hostilities across the region.

Speaking to the Financial Times, Qatar’s energy minister, Saad al-Kaabi, said suppliers in the region were now at risk of failing to meet contractual obligations, leaving them with little choice but to halt operations.

“Everybody that has not called for force majeure we expect will do so in the next few days that this continues,” he said. “All exporters in the Gulf region will have to call force majeure. If they don’t, they are at some point going to pay the liability for that legally.”

He also warned that even if the war ended immediately, it would take “weeks to months” to return to normal.

Arguing that a prolonged conflict could push oil to $150 a barrel, he added: “This will bring down the economies of the world,.

“If this war continues for a few weeks, GDP growth around the world will be impacted. Everybody’s energy price is going to be higher.”

Oil prices, which had already been trading at a 20-month high, spiked on the comments, with benchmark Brent crude surging 5% to $90.02 a barrel by 1415 GMT, the highest level since autumn 2023.

It has now put on well over 20% in the week since US launched its attack on Iran.

West Texas Intermediate was up 8% at $87.71.

Prices of both oil and gas have surged as hostilities across the Middle East escalated during the week.

As well as oil and gas facilities coming under attack or having to close, the Strait of Hormuz is now deemed too dangerous to use, with shipping traffic grinding to a near-complete halt. Around a fifth of the world’s oil and gas is normally transported through the narrow waterway between Iran and the United Arab Emirates.

Concerns about the impact of global supplies saw the White House give Indian refiners a 30-day waiver to buy normally sanctioned Russian oil on Friday.

Russ Mould, investment director at AJ Bell, said the move "suggests any solution to the blockage of the Strait of Hormuz is unlikely to happen overnight".

He continued: "The longer that key energy infrastructure and shipping routes are affected, the greater the chance of a significant inflationary impact.

"This in turn could translate into higher interest rates over the medium term, which is typically bad news for equity markets."

The Bank of England’s rate-setting Monetary Policy Committee signalled at its last meeting that further reductions to the cost of borrowing were imminent, as inflationary pressures eased. However, expectations for a March cut have now been all-but wiped out.

Berenberg said that in its best-case scenario, the Strait of Hormuz would reopen by the end of this month, allowing exports to resume and taking pressure off oil prices.

But it warned: "However, a prolonged conflict could keep the Strait of Hormuz off limits for far longer. In this bad case, we assume the oil price rises to $120 a barrel and gas to €90mWh for six months before a resolution at the end of the summer brings them back down to pre-war levels in early 2027."

The bad-case scenario would delay BoE interest rate cuts by a year, Berenberg estimated, and keep inflation at 3% throughout the year, as well as brining growth to a "standstill" in the Eurozone.