Oil surges past $100 as Middle East conflict threatens global supply chains

Oil crossed the $100 mark on Thursday for the first time in two months, a sharp jump from $95 the day before. The move reflected a simple and urgent fear: that Yemen's Houthi militia could choke off Saudi oil shipments through the Red Sea while tensions between the United States and Iran threatened to disrupt another critical chokepoint, the Strait of Hormuz. Two Saudi oil tankers, the Encelia and Layla, had just been struck by ballistic missiles, cruise missiles, and drones in attacks the Iranian-aligned Houthis claimed responsibility for. One vessel was left burning. The group said the attacks were retaliation for crews violating the naval blockade it has imposed in the Red Sea.

This escalation opened a new chapter in a crisis that has been building for months. Nearly five months earlier, after US-Israeli strikes on Iran, oil had surged past $100 a barrel as traders braced for the worst—a complete shutdown of Hormuz, which would have been the most severe energy supply disruption in market history. Prices climbed to $126 in April. But a memorandum of understanding between Washington and Tehran had brought a fragile calm. Oil fell back below $100 in late May, then tumbled to $71 in early July as hopes for a ceasefire took hold. That agreement has now collapsed, and hostilities have resumed.

The market's anxiety rippled far beyond oil futures. Stock exchanges on both sides of the Atlantic fell sharply. New York's Nasdaq, heavy with technology stocks, dropped more than 2 percent. Tesla crashed 12 percent after reporting profits below expectations, caught in broader worries about artificial intelligence spending. But the real tremor came in government bond markets. Investors, sensing that a sustained oil spike could reignite the inflation that has plagued economies for years, began dumping bonds from the world's largest economies. Yields on US, German, and Japanese government debt rose. In Britain, the yield on 10-year borrowing climbed about 0.1 percentage points to above 5.1 percent, the highest level since May.

Analysts see the risk of much worse. If the conflict widens without further restraint, oil could climb to $120 a barrel. Some fear a return to the panic that gripped markets in March and April of 2025. Fatih Birol, head of the International Energy Agency, acknowledged this week that while certain "cushioning factors" have helped prevent runaway prices so far, there is no margin for error. The escalation in hostilities has left little room for complacency. Chris Beauchamp, chief market analyst at IG, warned that volatility is surging and equities are moving deeper into losses as the prospect of full-scale regional conflict looms—one that could draw in Israel and multiple other countries.

The timing compounds the pressure. Britain's new prime minister, Andy Burnham, has unveiled tax and spending plans that some City traders believe could further strain government borrowing costs. The convergence of geopolitical risk, energy supply uncertainty, and domestic fiscal concerns has created a moment of genuine fragility. Households already worn down by years of energy cost inflation now face the prospect of another shock. The global economy, still recovering from previous disruptions, sits exposed to forces that move faster than policy can respond.