Global Markets Swing as Iran Conflict Fuels Energy Price Volatility and Economic Concerns

Stock markets in the United Kingdom and the United States rebounded on Wednesday, while several Asian markets continued to slide, as investors reacted to ongoing volatility in oil and gas prices driven by fears that the escalating conflict involving Iran, the US, and Israel could become prolonged.

The FTSE 100, which tracks the largest companies listed in London, posted gains alongside major American and European indexes after two consecutive days of declines. In contrast, several Asian indexes suffered steep losses for a third straight day as regional markets struggled under the pressure of rising energy costs.

Oil and gas prices eased slightly on Wednesday but remained significantly higher than levels recorded before the conflict began. The surge followed a dramatic disruption to shipping through a crucial maritime route near Iran, where vessel movements have nearly stopped.

Economists warn that sustained increases in energy prices could ripple through the global economy by pushing up the cost of goods and services.

David Miles, a committee member at the Office for Budget Responsibility, the UK government’s independent fiscal watchdog, said inflation in the UK would likely rise if elevated oil and gas prices persist for an extended period.

However, he noted that the scale of current price increases is still far below those experienced following the Russian invasion of Ukraine four years ago.

“If prices stayed where they were at the moment, probably we're talking about an impact on the level of prices in the UK maybe of 1% or so,” Miles said.

Energy markets have reacted sharply to the military escalation. Brent crude prices have surged roughly 12% since Israeli and US forces began bombing Iran on Saturday, prompting retaliatory attacks by Tehran on neighboring Arab countries.

On Wednesday, the defense ministry of Saudi Arabia reported that drones attempted to strike the Ras Tanura oil refinery, marking the second such incident this week. At the same time, QatarEnergy, the state-owned energy giant of Qatar, temporarily halted production of liquefied natural gas (LNG), further rattling energy markets.

In the UK, the benchmark gas price has jumped by more than 60% since the conflict erupted. It ended trading on Wednesday at 128p per therm, below Tuesday’s peak of 170p but still significantly elevated.

Much of the concern centers on the Strait of Hormuz, a narrow maritime corridor between Iran and the United Arab Emirates, through which roughly one-fifth of the world’s oil and gas supplies normally pass.

Shipping activity in the strait has nearly ground to a halt after Iranian threats to “set fire” to vessels using the route. According to Lloyd's List Intelligence, approximately 200 oil tankers have effectively become stranded, while insurance premiums have soared—particularly for ships linked to the US, Britain, or Israel.

On Tuesday, Donald Trump, president of the United States, said the government would offer risk insurance “at a very reasonable price” and deploy the US Navy to protect oil tankers “if necessary.”

Even so, industry experts have cautioned that such assurances may not fully calm corporate fears. The president also did not provide details on how naval escorts through the strait would function.

Lindsay James, an investment strategist at wealth management firm Quilter, suggested financial markets may be underestimating the scale of the challenge.

She said investors appeared to be taking an “optimistic view” of the situation, even though Iran retains the capability to block shipping routes.

“Shipping companies, insurers, crew members, potentially, are probably going to be reluctant to do this… It's not really feasible to think that that is going to be the solution to reopening energy supplies,” she said.

“The solution is going to be a peace agreement, and it feels like we're some way away from that.”

Meanwhile, Scott Bessent, the US Treasury Secretary, attempted to reassure markets on Wednesday, stating that global crude oil markets “are very well supplied.”

Stock markets have dropped sharply since the initial strikes by the US and Israel over the weekend, with Asian markets particularly vulnerable due to the region’s heavy reliance on energy imports from the Middle East.

In South Korea and Thailand, stock exchanges temporarily halted trading after their markets plunged by more than 8%. The suspensions triggered so-called circuit breakers designed to prevent panic-driven selloffs.

Energy analysts say the disruption could have significant ripple effects across global gas markets.

James Hosie, an oil and gas equity analyst at Shore Capital, noted that around 80% of Qatar’s LNG exports typically go to Asian buyers.

“Those consumers will now be bidding up the price of LNG cargoes to secure alternative supplies, as is now being seen with the spike in Asian LNG prices,” he said.

“There obviously is a knock-on effect to the price of gas elsewhere, including the UK, where LNG helps balance demand with supply.”

Concerns Grow Over Inflation and Interest Rates

In Britain, Rachel Reeves, the UK chancellor, is scheduled to meet North Sea energy executives on Wednesday afternoon to discuss the impact of the Middle East conflict and explore ways to navigate what officials described as “this uncertain period.”

Analysts say the energy shock could complicate monetary policy decisions.

Quilter’s James said investors are increasingly pricing in the possibility of higher inflation in the UK, warning that “that could take one of the interest cuts that was pencilled in off the table.”

Financial markets had previously anticipated that the Bank of England might reduce interest rates twice this year as inflation eased.

However, the National Institute of Economic and Social Research, a leading economic think tank, warned that if energy prices remain elevated, the central bank could instead be forced to increase borrowing costs again—potentially pushing interest rates above 4%.

The Bank of England is scheduled to announce its next interest rate decision on March 19, a move that investors will closely watch as markets continue to react to geopolitical tensions and energy market disruptions.

By fLEXI tEAM