Oil costs soar after Israel launches strikes on Iran’s capital

Oil prices have surged after Israel launched an attack on Iran’s nuclear programme with financial markets anxious over retaliatory action.

The price of Brent crude jumped nearly 10% higher at one stage before easing back a little to stand 7% higher at 74 US dollars a barrel.

The strikes by Israel on Iran’s capital Tehran early on Friday are said to be the most significant attack the country has faced since its 1980s war with Iraq and have led to concerns over an all-out conflict between the two Middle Eastern countries.

In Washington, the Trump administration said it had not been involved in the attack and warned Iran not to retaliate against US interests or personnel.

It threatens disruption to the supply of crude from the Middle East while some traders flagged concerns it could also impact the flow of liquified natural gas (LNG) if tensions escalate.

There were also heavy overnight losses on Asian stock markets as the worries spooked investors, with the Hang Seng down by more than 1% and Japan’s Nikkei 225 off by nearly 1%.

Rising oil prices could threaten to push up inflation in the UK, possibly impacting the outlook for further interest rate cuts.

The Bank of England has been cutting rates but, as inflation strays further from the 2% target, it has less leeway to bring down borrowing costs.

Derren Nathan, head of equity research at Hargreaves Lansdown, said: “It’s not just the outlook for Iranian exports that’s a concern but also the potential for disruption to shipping in the Persian Gulf’s Strait of Hormuz, a key route for about 20% of global oil flows and an even higher proportion of liquified natural gas haulage.”

He added: “The escalation of military action adds another factor to consider for central bankers in an already complex world as they weigh up the inflationary impact of ever-changing tariff rates and a weakening outlook for jobs and growth.”