Soaring oil prices have pushed UK inflation to a five-month high. Consumer prices rose 3.1% in the year to August. Motor fuel prices rose nearly a quarter, with petrol rising to 161.3p per litre and diesel hitting 181.8p. Brent crude is back above $100 a barrel. Trading at $108 as of Wednesday, it has risen 78% since the start of the year.
While there is no end in sight to America's war with Iran, until recently the White House had seemed to be gaining the upper hand in the economic battle. Despite the closure of the vital Strait of Hormuz artery, oil prices had stayed below $100 for several months. That was in large measure thanks to clandestine shipments through the strait – high-risk “dark crossings” made by crude tankers with their transponders turned off so as to evade Iranian detection, say Dmitry Zhdannikov and Anushree Ashish Mukherjee for Reuters.
Together with pipelines that circumvent the Strait of Hormuz, the “industry consensus” is that roughly two-thirds of pre-war Persian Gulf volumes are still making their way out of the region. All told, such “dark shipments” may have reached 500 million barrels between June and August, enough to put a meaningful dent in the world's thirst for fuel.
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Now the pendulum is swinging the other way. Last week, Saudi Arabia was forced to close its vital east-west pipeline following attacks by Iranian-backed militias in Iraq. That may cut global oil supplies by as much as 3.6 million barrels per day, equivalent to 3.6% of global demand, according to analysis by Kpler.
Pipelines have been a major tool for bypassing Hormuz, but these strikes are a reminder that they can be destroyed, Anne-Sophie Corbeau of Columbia University tells the BBC. In war, pipelines are “sitting ducks”.
Meanwhile, the alternative Red Sea route is coming under renewed threat from Yemen's Houthi militia, says Gideon Rachman in the Financial Times. The Houthis are a tough nut to crack. They have been fighting better-equipped enemies for more than two decades. The persistence of the Taliban, another US adversary that ultimately outlasted Washington's patience, comes to mind. Another vital energy route is being squeezed just as the northern hemisphere enters winter.
Surging oil price at the root of the debt crisis
Surging energy prices and inflation are the root cause of the global spike in government borrowing costs, says Aaron Back in The Wall Street Journal. The benchmark US ten-year Treasury this week topped 5% to hit its highest level since 2007. After years of deficit spending and the “twin crises” of Covid-19 and Russia's invasion of Ukraine, the world's developed nations entered this year in a “weakened fiscal position”. That was “the dry timber that the Iran war now threatens to set ablaze”.
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