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Donald Trump’s latest attempt to ease uncertainty over the US and Israel’s war on Iran only increased investors’ concerns.
The American president’s speech saying American troops would leave Iran in two to three weeks, and threatening to hit Iran’s power plants very hard, has caused falling oil prices to spike again.
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A barrel of Brent crude is now up more than 7% at $107.50 since his comments, after falling below $100 yesterday. Oil prices impact the cost of gasoline and diesel, home heating oil, and prices throughout the economy.
The same thing happened to wholesale fuel prices in the UK, which rose more than 6% following Trump’s remarks. Electricity prices in the UK are still dependent on wholesale fuel costs.
Asian stock markets were also in the red, with Korea’s Kospi index and Japan’s Nikkei index recording heavy losses of over 4.5% and 2.3% respectively.
At the heart of these concerns is the energy crisis of the 1970s due to month-long shipping disruptions in the main oil and gas shipping lane, the Strait of Hormuz.
More than a fifth of the world’s oil and liquefied natural gas (LNG) is usually transported through the canal, but over the past month, the canal has become too dangerous and expensive for most tankers to navigate.
Iran has attacked many ships making the trip and insurance companies have raised premiums.
This means missed shipments from key oil countries in the Gulf, oil and gas refueling, and reduced production by energy producers.
Oil and gas production is not easy to turn on and off, so restoring supplies is not a quick process.
Impact in England
As the dollar strengthened amid continued uncertainty, sterling weakened. Before Trump’s announcement, a pound was buying at $1.33, which fell to $1.32 this morning. A pound is now buying at just over €1.15, down from €1.16 on Wednesday afternoon.
This means that buying dollar-priced goods, such as oil, is more expensive than yesterday.
And after strong gains on Wednesday, Britain’s flagship share index, the FTSE 100 of the London Stock Exchange’s most valuable companies, fell 0.6%.
Home heating oil prices remain double their pre-war Iran prices, while motoring organization RAC said petrol and diesel prices in the UK in March had jumped more than a month earlier.
Even if the war were to end in a few weeks, the food and drink producers’ membership body, the Food and Drink Federation, estimates food inflation will rise by at least 9% by the end of the year.
The latest attempt to calm the market
Trump’s speech last night was just the latest attempt to allay the fears of investors and voters about the impact of war on the duration and cost of living.
In the first week of the war, he said the US Navy could escort ships through the Strait of Hormuz.
After this failed to materialize, the Trump administration lifted sanctions on Russian oil so that Indian refineries could begin processing fossil fuels.
Continuously rising oil prices do not mean that Trump has repeatedly stated that many of his goals have been achieved and that the war will end soon.
His suggestion that US troops could seize Iran’s main oil export outlet, Kharg Island, also had no impact on oil.
