Oil hits five-month high as geopolitical tensions weigh on global markets

Global oil prices have reached a five-month high, driven by escalating geopolitical tensions in the Middle East and the Black Sea. Brent crude, the international benchmark, climbed as much as 2.8 per cent to exceed $116 a barrel, marking its highest level since May. This surge in energy costs has exerted significant downward pressure on equity markets across the United States, Europe and Asia, as investors weigh the potential for further conflict and its impact on inflation.

The rise in crude prices follows reports that the United States and Israel have drawn up plans for renewed strikes against Iran following the midterm elections. Additionally, Houthi attacks on Saudi Arabian infrastructure have stoked fears of further disruption to energy supplies. These developments have contributed to a broader sell-off in risk assets, with European shares falling on Friday. The FTSE 100 dropped as much as 0.8 per cent, while the Cac 40 in Paris and the Dax in Frankfurt fell by 1 per cent and 1.1 per cent respectively. On Wall Street, the Dow Jones Industrial Average declined by as much as 1 per cent, while the S&P 500 and Nasdaq Composite also retreated, following a sharp drop in tech-heavy shares earlier in the week.

The market turmoil has been compounded by concerns over the valuations of artificial intelligence companies. Traders were rattled by warnings from Nvidia’s chief executive regarding a scarcity of capital hampering technology rollout. This sentiment led to a significant decline in tech stocks, with Meta shares falling almost 7 per cent. The sell-off spread to Asian markets, where Japan’s Nikkei 225 dropped by as much as 2.3 per cent. In response to the volatility, investors flocked to safe-haven assets, causing the yield on 10-year US Treasury bonds to fall by the largest amount since March 2023.

Precious metals have also experienced volatility. Spot gold fell below $4,000 per troy ounce for the first time since July, representing a 15 per cent decline from its August highs. Analysts attribute this drop to surging energy prices and a hawkish outlook on interest rates, which reduces the appeal of holding non-yielding assets. Meanwhile, the US Department of Energy announced it would release up to 400,000 barrels of crude from national reserves to address a supply disruption affecting a refinery in Louisiana, a move intended to support stable fuel supplies.

In the United Kingdom, the rising cost of fuel has prompted calls for government intervention. Pressure group FairFuelUK has demanded that the Chancellor introduce emergency measures, such as fuel-tax cuts, in the upcoming Budget. The group criticised the government for prioritising Treasury revenues over protecting motorists from soaring prices. Similarly, the heads of the country’s four regional fishing bodies have warned that persistently high fuel prices pose an existential threat to the industry, with the cost of fuel for a trip now exceeding the potential earnings from selling the catch.

Geopolitical risks remain a dominant factor in market sentiment. Tensions in the Black Sea have intensified after a drone attack sank a cargo vessel near Romania, killing one crew member and leaving three missing. EU chief Ursula von der Leyen described the incident as a reckless escalation that defies international law. These events, combined with the ongoing conflict in the Middle East, have kept oil prices elevated, with Brent crude up more than 85 per cent this year. Despite some recovery in Gulf exports, analysts caution against assuming a full normalisation of energy flows, noting that temporary increases may reflect inventory drawdowns rather than sustainable supply improvements.