Britain’s stock market showed signs of resilience on Wednesday, even as global energy markets remained volatile amid fears the escalating conflict with Iran could lead to prolonged disruptions to global oil and gas supplies.
London’s benchmark FTSE 100 index rose slightly, reflecting modest gains in European markets including Germany and France. The calmer performance in Europe contrasted sharply with developments in Asia, where share prices continued to fall for a third straight day as investors reacted nervously to rising geopolitical risks and rising energy prices.
Despite the relative stability of UK stocks, energy markets looked very different. Oil prices rose more than 1 percent during trading, with Brent crude climbing to around $83.50 a barrel, reflecting growing concerns about the security of global energy supply routes after renewed tensions in the Middle East.
The latest rise in oil prices came after Saudi Arabia’s Defense Ministry reported an attempted drone attack on the Ras Tanura oil refinery, one of the kingdom’s key energy facilities. The attack was the second time in a week that the refinery was targeted, adding to concerns about supply stability in a region that remains central to global energy markets.
Brent crude prices have now risen around 15 percent since the United States and Israel launched military strikes against Iran, with Tehran retaliating by attacking neighboring countries and threatening shipping in the Gulf region.
At the same time, state-owned energy giant QatarEnergy halted production of liquefied natural gas (LNG) after attacks on its facilities heightened fears of major disruption to global gas markets.
Gas prices in Europe and Great Britain reacted violently. Britain’s benchmark wholesale gas price, which had risen earlier in the week, remained volatile, hovering around 127 pence per therm by midday, after briefly peaking at almost 170 pence per therm during the height of market uncertainty.
Energy analysts warn that this volatility reflects growing concerns about the stability of the Strait of Hormuz, one of the world’s most strategic sea routes.
Disturbance in the Strait of Hormuz threatens global supplies
Around 20 percent of global oil and gas exports normally pass through the Strait of Hormuz, the narrow shipping canal that separates Iran from the United Arab Emirates.
However, maritime traffic through the strait has largely come to a standstill after Iran threatened to attack ships and “set fire” to vessels attempting to pass through the strategic waterway.
According to maritime tracking data from Lloyd’s List Intelligence, around 200 oil and gas tankers are currently stranded and unable to travel the route safely. Insurance premiums for ships – particularly those with connections to Western countries such as the United States and the United Kingdom – have also risen sharply.
The situation has created a severe bottleneck in global energy logistics and raised fears that even a temporary disruption could have a significant impact on supply chains in Europe and Asia.
President Donald Trump said the United States would consider using the Navy to escort oil tankers through the strait and provide risk insurance to shipping companies.
But analysts say such measures may not be enough to reassure insurers, shipping companies and crews fearful of entering a potential conflict zone.
Lindsay James, investment strategist at asset management firm Quilter, said markets may be overly optimistic about the situation.
“Shipping companies, insurers and even crew members will likely remain reluctant to operate in an area that is effectively a military hotspot,” she said.
“It is not realistic to believe that naval escorts alone will quickly resolve the situation. Ultimately, the reopening of these shipping routes will depend on diplomatic progress – and that appears to be a long way off.”
Asian markets are suffering from rising energy costs
The economic impact of the conflict was particularly visible in Asia, where several economies rely heavily on energy imports from the Middle East.
Stock markets across the region are under intense pressure as investors assess the potential impact of rising oil and gas prices on inflation and economic growth.
Trading was temporarily halted in South Korea and Thailand after markets plunged more than 8 percent, triggering automatic “circuit breakers” designed to prevent panic-induced selling.
Energy analysts say Asian economies could face the most immediate impact of supply disruptions as they import large quantities of LNG from Qatar.
James Hosie, oil and gas equity analyst at Shore Capital, said about 80 percent of Qatar’s LNG exports are typically shipped to Asian markets.
“These consumers will now look to find alternative supply options,” he said.
“This competition for cargoes is already driving up LNG prices in Asia, and this will inevitably impact global gas prices, including those in Europe and the UK.”
With LNG supplies playing a crucial role in balancing UK gas supplies during periods of high demand, volatility in Asian markets can quickly impact UK energy prices.
Rising energy costs are now raising concerns among economists that inflation in Great Britain could rise again after months of easing.
David Miles, a member of the Office for Budget Responsibility, said a continued rise in oil and gas prices could add upward pressure on inflation.
However, he stressed that the scale of the increases was still well below the levels seen after Russia’s invasion of Ukraine.
“If prices remained at their current levels, we could see a rise in UK price levels of around one percent,” Miles said.
“This is significant, but it is nowhere near the shock that occurred during the energy crisis of 2022.”
Still, even a small rise in inflation could complicate the Bank of England’s plans to cut interest rates later this year.
Financial markets had previously expected the Bank of England to cut borrowing costs several times in 2026 as inflation gradually approached its two percent target.
However, this outlook could change due to renewed pressure on energy prices.
The National Institute for Economic and Social Research warned that policymakers could be forced to rethink their plans if energy prices remain high for an extended period.
In the worst case, according to the think tank, interest rates could even rise again to over four percent if inflation pressure increases.
Markets had previously forecast two interest rate cuts this year, but those expectations have now weakened as traders reassess the economic impact of the Middle East conflict.
The Bank of England is expected to announce its next interest rate decision on March 19, a meeting that will now take place against a far more uncertain global backdrop.
The potential impact of the conflict on Britain’s energy security has also attracted political attention.
UK Chancellor Rachel Reeves will meet with leaders of the North Sea energy sector to discuss the potential consequences of the crisis and assess how the government can help stabilize supplies.
Officials say the meeting will focus on how domestic manufacturing and energy infrastructure can help protect the UK from ongoing disruption in global energy markets.
Financial markets currently appear to be balancing cautious optimism in stocks with high uncertainty in energy markets – a reflection of how closely the global economy remains tied to geopolitical developments in the Middle East.
