And finally, the UK’s stock market has clawed back most of its earlier losses.

The FTSE 100 share index has closed for the night, down 35 points at 10,249 points, having been down around 200 points in early trading.

Energy companies and defence stocks led the risers, while property developers, housebuilders and retailers fell as hopes of UK interest rate cuts evaporated today.

“It’s been tough for investors to figure out how to price in the Trump effect over the past 12 months,” says AJ Bell head of financial analysis Danni Hewson, adding:

“For many it has made sense to plump for the ‘TACO’ trade, assuming the US president will pull back or change direction quickly. But after a relatively calm period for markets last week, the rhetoric from both sides in the US-Iran conflict over the weekend will have forced traders to think again.

“The US economy and markets will be insulated to a degree by the country’s huge oil and gas industry, but it can’t escape soaring prices entirely, or the growing spectre of stagflation which is stalking the global economy.

“For central banks, the only way may be up when it comes to interest rates – a huge pivot from where markets had expected them to go in 2026.

“Preventing inflation from reaching those scorching hot levels that would annihilate already fragile consumer confidence will trump a desire to curb unemployment or charge up economic growth.

Time for a recap, after a dramatic day in the financial markets.

UK chancellor Rachel Reeves has warned petrol, diesel and heating oil retailers not to take advantage of the surge in oil prices.

Updating MPs about the situation, after an alarming surge in oil prices last night, Reeves said she would “continue to monitor prices” at the pumps as the situation develops.

She told the House of Commons:

I have also asked the Competition and Markets Authority to be vigilant across prices, including essentials like road fuel and heating oil.

Let me be absolutely clear. I will not tolerate any company exploiting the current crisis to make excess profits at consumers’ expense.

Reeves also reassured households that the UK energy price cap will fall in April, as planned before the Middle East crisis erupted.

She was speaking after taking part in a call with fellow G7 finance ministers, where they agreed to stand ready to take necessary measures” to support oil supplies

G7 finance ministers met after the Iran war drove the cost of a barrel of crude to its highest since 2022, over $100 a barrel in frenzied trading as Asia-Pacific markets opened last night.

They faced calls to release their emergency oil reserves, but the France’s finance minister has said the G7 are “not there yet”.

In a statement, the G7 finance ministers say:

“We, the G7 finance ministers, held a virtual meeting on March 9, together with the Heads of the International Monetary Fund (IMF), World Bank Group (WBG), Organisation for Economic Co-operation and Development (OECD), and International Energy Agency (IEA).

“We discussed the current conflict in the Middle East, its impact for regional stability, global economic conditions, and financial markets, and the importance of secure trading routes.

“We will continue to closely monitor the situation and developments in the energy markets and will meet as needed to exchange information and to co-ordinate within the G7 and with international partners.

“We stand ready to take necessary measures, including to support global supply of energy such as stockpile release.”

The G7 statement appeared to calm the financial markets, which had been highly volatile early in the day.

Brent crude rocketed to as high as $119.50 a barrel as the financial markets opened on Sunday night UK time, an astonishing jump of 29%, as the fallout from the US-Israel war with Iran continued to rattle global markets.

But crude prices then eased back during afternoon trading today. Brent crude is now changing hands around $99.75 a barrel, still up 7.33% on the day.

The TUC warned that “working people are now facing a Donald Trump-made cost of living crisis”.

According to the RAC, UK petrol has risen by 5p to 137.5p a litre since the Iran war began on Saturday 28 February, with diesel is up 9p to 151p a litre.

Fears of an inflationary surge hit the price of government bonds today, pushing up the yield (or interest rate) on UK debt, before a late recovery.

The yield on two-year UK gilts surged by 36 basis points (0.36 of a percentage point) at one stage, on track for its biggest daily jump since Liz Truss’s mini-budget alarmed investors in September 2022.

But yields eased back in late trading, and were only slightly higher on the day.

Hopes that the Bank of England would cut interest rates this year were dashed by the jump in the oil price. The City money markets now indicate the Bank is expected to keep rates on hold through 2026, with a small possibility of a rise in 2027.

Working people are now facing a “Donald Trump-made cost of living crisis”, TUC General Secretary Paul Nowak has warned.

Following Rachel Reeves’s statement to parliament, after the (partly unwound) surge in oil today, Nowak says:

“It’s right that the Chancellor calls for deescalation and recognises the real threat to households and industry up and down the country.

“While household energy bills are stable for now, it’s clear that Trump’s war threatens living standards with other costs like petrol and mortgage rates already rising.

“The government must stand ready to pull out all the stops and shield households and firms from this global shock.”

Rachel Reeves also reassured consumers that despite the recent movements in energy prices, the price cap for domestic bills for April will not change.

That means that the average energy bill for millions of households will fall by £10 a month in the spring, because Ofgem announced a 7% cut in the price cap, bringing down the average annual dual-fuel bill to £1,641in April-July, from £1,758 todau.

Reeves says this will give families “immediate certainty on their bills until at least the end of June”.

Rachel Reeves has warned petrol retailers not to take advantage of the crisis by ripping off customers.

She tells MPs that she will meet with petrol forecourt operators this week, and warns that she will “not hesitate” to call out retailers who don’t provide data to the UK’s fuel price tracker.

Reeves tells the House of Commons that she has asked the UK’s competition watchdog to monitor the sitation.

I am clear that the best way to keep prices at the pump low is rapid de-escalation, and I will continue to monitor prices as the situation develops.

I have also asked the Competition and Markets Authority to be vigilant across prices, including essentials like road fuel and heating oil.

Let me be absolutely clear. I will not tolerate any company exploiting the current crisis to make excess profits at consumers’ expense.

[Reminder, the RAC has calculated that UK petrol has risen by 5p to 137.5p a litre since the Iran war began on Saturday 28 February. Diesel is up 9p to 151p a litre.]

Rachel Reeves then tells MPs that she set out her priorities for the international cooperations we need to see to ease the Middle East criris, when she spoke with G7 finance ministers.

She lists four priorities.

First, she calls for immediate de-escalation and a return to the diplomatic process.

Secondly, the chancellor says “we must guarantee the security of vessels passing through the Strait of Hormuz”.

Thirdly, the UK chancellor says she stands ready to support a coordinated release of collective International Energy Agency oil reserves.

And fourth, Reeves pledges that the UK will “play its part” as the global hub of maritime insurance, adding:

I am meeting with the chair of Lloyd’s of London later today, where we will discuss how best to support the continued passage of maritime trade.

Over in parliament, Rachel Reeves is updating MPs about the government’s preparedness and response to the situation in the Middle East.

The chancellor starts by paying tribute to the UK’s armed forces, and expressing concern and sympathy for the British citizens whose lives have been disrupted by the conflict so far.

Reeves then pledges to take the necessary decisions to help families with the cost of living and protect the public finances.

She insists she is “clear-eyed” about her response to the situation, promising:

“My economic approach will both be responsive to a changing world and responsible in the national interest.”

She adds that the economic impact of the situation in the Middle East will depend on its “severity and its duration”.

The movements that we have already seen are likely to put upward pressure on inflation in the coming months. But I also want to confirm to the House that our financial markets are functioning, and I’m in regular touch with the governor of the Bank of England.

A UK government rescue flight is to bring Britons back from Dubai, PA Media report.

The flight will be the first from the United Arab Emirates (UAE), and comes after a third rescue flight from Oman landed in the UK early on Monday, with more than 200 British nationals on board.

About 180 British nationals are expected to leave on the first charter flight out of Dubai, with a further two flights expected this week, at a cost of £500 a seat.

UK government borrowing costs, which surged this morning, have slipped back.

Two-year bond yields (which are sensitive to interest rate moves) are now up just 10 basis points (0.1 percentage points), having been over 30bps higher this morning.

With oil slipping back below $100 a barrel this afternoon, fears that the Bank of England might raise interest rates are easing.

The money markets are now pricing in no change in UK interest rates this year, and only a small possibility of a rise in 2027.

The oil price has now dipped back below the $100 a barrel mark, after G7 finance ministers declared they “stand ready” to take action to support energy supplies.

Even though the G7 haven’t yet uncorked their emergency oil reserves, as the IEA wanted, the surge in crude prices is slightly easing off.

US crude is now trading around $96.50 a barrel, up 6% today, while Brent crude (the international benchmark) is 6.5% higher at $98.76 a barrel.

The sell-off in European stock markets is easing too – with London’s FTSE 100 share index now only down 48 points, or 0.47%, at 10,237 points.

Here’s the full statement from G7 finance ministers, including UK chancellor Rachel Reeves, following their meeting about the Iran war and its impact on shipping and the oil price.

“We, the G7 finance ministers, held a virtual meeting on March 9, together with the Heads of the International Monetary Fund (IMF), World Bank Group (WBG), Organisation for Economic Co-operation and Development (OECD), and International Energy Agency (IEA).

“We discussed the current conflict in the Middle East, its impact for regional stability, global economic conditions, and financial markets, and the importance of secure trading routes.

“We will continue to closely monitor the situation and developments in the energy markets and will meet as needed to exchange information and to co-ordinate within the G7 and with international partners.

“We stand ready to take necessary measures, including to support global supply of energy such as stockpile release.”

Investors are betting the conflict in Middle East will last no more than a month, says Dario Perkins, the managing director of global macro at the consultancy TS Lombard.

Many of these investors fear missing out on the upswing in stocks should Donald Trump declare victory and oil prices sink back towards the $60 a barrel seen in January.

If it last longer than a month, Washington’s complacency could induce a massive shock that is compounded by central bank’s raising rates to control inflation.

“There is a risk that we are experiencing one shock to many,” Perkins said, explaining:

“People are comparing the current situation to the inflation seen in 2022, but there is so much that is different this time.

“In 2022, but back then the economy was growing stronly out of the pandemic, househol savings were high, there were job shortages and because of that worker power was quite high. You can see that the elements were in place for inflation to go higher.

“But now, the economy is stagnant, interest rates are high, there is not job shortage and unemployment is rising.

“It means the central banks could find themselves hiking interest rates back up again as the economy is getting weaker and making the situation worse.”

Perkins, who was in the Treasury as an economic adviser in the 2008 crash, added:

“There is an assumption the economy has proved resilient during the tariff crisis and all the others. But what is this is a shock to far.”

The G7 finance ministers have now issued a statement, following their video call today.

They say they are ready to take “necessary measures” to support the global supply of energy, which could include the releasing of stockpiles, following the current conflict in the Middle East and its effects on the oil and gas prices.

They say:

“We stand ready to take necessary measures, including to support global supply of energy such as stockpile release.”

However, it doesn’t appear that the G7 have actually resolved to do anything.

Fatih Birol, executive director of the International Energy Agency, has issued a statement confirming that he took part in today’s meeting of G7 Finance Ministers on the global economic situation and Middle East conflict.

Birol says that he updated ministers about the deteriorating conditions in global oil markets.

He adds that the meeting “discussed all the available options” including releasing emergency oil stock.

But… he doesn’t suggest that any decisions has been made….

Newsflash: G7 finance ministers have not, yet, agreed to release oil stockpiles to calm the market.

Finance ministers from the G7 – that’s Canada, France, Germany, Italy, Japan, the United Kingdom and the United States – have held their planned conference call today to discuss the crisis, after oil surged over $100 a barrel overnight.

France’s finance minister, Roland Lescure, has said that the G7 is “not there yet” on an agreement to release oil stockpiles, and has yet to reach a concensus on the issue.

Reuters reports that Lescure added that ministers have agreed to use “any necessary tools if need be” to stabilise the market, including “the potential release of necessary stockpiles”.

Japanese finance minister Satsuki Katayama has told a briefing that the International Energy Agency called for a coordinated release of emergency oil reserves during today’s online call with the G7.

Katayama said:

“IEA called for each country to do coordinated release of oil reserves.”

All but four of the 30 companies on the Dow Jones Industrial Average have dropped in early trading.

Aircraft manufacturer Boeing (-3.2%) are the top faller, followed by manufacturing conglomerate 3M (-3.1%) and network equipment maker Cisco (-3%).

Wall Street has begun the new week by dropping, as investors react to oil’s surge over $100 a barrel.

It’s not a terribly severe sell-off at all, though.

The Dow Jones industrial average has dropped by 434 points at the open, a fall of 0.91%, to 47,067 points.

The broader S&P 500 index, and the tech-focused Nasdaq are both down 0.9%.

David Morrison, senior market analyst at Trade Nation, says the jump in energy prices has triggered “a wave of negative sentiment as investors look to trim their exposure to risk assets”.

India is not planning to release oil reserves in coordination with the International Energy Agency and has no immediate plans to raise retail prices for gasoline and diesel as of now, a government source told Reuters today.

The Europea Commission has said that member states have sufficient stocks of oil and gas despite the disrupted supply chains due to the war in the Middle East.

EC spokesperson Anna-Kaisa Itkonen told reporters in Brussels:

“We are far less concerned about the security of supply than we are of the high energy prices.”

Itkonen added that EU members had stocks of oil or equivalents to last up to 90 days, and that there was no sign of any emergency situation.

Mortgage lenders are repricing their products, higher, due to the turmoil in the markets since the Iranian war began.

PA Media reports that mortgage borrowers looking for a new deal will have some “unwelcome news”, a website has warned, as it saw a flurry of lenders reveal hikes to their rates, pushing up average fixed rates for homeowners to choose from.

Financial information website Moneyfacts said that it had seen several lenders adjust pricing on their fixed deals, including First Direct, Coventry Building Society, Yorkshire Building Society and Nottingham Building Society.

Cumberland Building Society was also withdrawing products while it repriced its mortgages, Moneyfacts said.

The hikes came on top of increases made last week, with HSBC UK, NatWest and Nationwide Building Society having made changes.

After a volatile morning, European stock markets are still in the red – but off their earlier lows – after steep losses in Asia-Pacific markets overnight.

The oil price is still trading over the $100 mark, on track for its highest close since 2022.

Here’s the situation:

• UK’s FTSE 100 share index: down 112 points or -1.1% at 10,172 points

• Germany’s DAX share index: down 350 points or -1.5% at 23,241 points

• France’s CAC share index: down 152 points or 1.9% at 7,840 points

UK bond prices are still sharply lower; that has lifted the yield, or interest rate, on two-year gilts to 4.14%, up from 3.52% before the crisis began. That shows the markets are lifting their expectations for inflation and interest rates.

The odds of a Bank of England interest rate cut this month have evaporated. There’s a 93.5% chance that that UK’s central bank holds rates on 19 March, and a 6.5% possibility of a hike, according to the money markets.

Daniel Casali, chief investment strategist at UK wealth manager Evelyn Partners, sums up the mood:

“The ramifications of the escalating conflict in the Middle East are increasingly uncertain. Moreover, the US and Israeli military strikes on Iran are now reverberating through energy prices: Brent crude oil has risen more than 50% since the conflict started to US$107 a barrel at the time of writing, its highest level in a year. In turn, Iranian drone and missile strikes on regional oil and gas infrastructure, along with damage to multiple tankers, have further heightened concerns about supply disruptions.

“So far, the price action in financial and currency markets has been volatile rather than disorderly. Nonetheless, the balance of risks is shifting. Upside inflation pressures are building as energy costs rise, while equities face mounting downside risk and bonds are increasingly exposed to renewed inflation momentum. Geopolitical events are inherently unpredictable, which is precisely why we invest in highly diversified portfolios, built to withstand such risks over the long term.”

The sharp jump in oil prices has forced markets to rethink the idea that UK interest rates are on a smooth downward path, says Jonathan Raymond, investment manager at Quilter Cheviot:

A sustained move in Brent oil over $100 is effectively an inflationary tax. It raises costs for businesses, squeezes real incomes and risks keeping headline inflation above target for longer.

If that persists, gilt yields and swap rates will remain under upward pressure, which is why we are already seeing mortgage pricing move higher before the Bank has done anything. The Bank is likely to initially look through the shock because it is energy driven, but if the Middle East situation deteriorates further the risk of policy tightening later in 2026 becomes harder to dismiss.

The key question for central bankers is how “persistent” the oil shock becomes.

Raymond adds:

It remains too early to expect the Bank to actively raise rates this year, but every day without progress on Iran increases the economic damage and the risk that higher energy prices feed more firmly into underlying inflation. That is why the market is starting to recognise that inflation is not yet last year’s problem.

Saudi Arabia has started reducing oil production as the near-blockage of the critical Strait of Hormuz starts filling up storage tanks, Bloomberg reports.

They explain:

The move by the kingdom, the world’s biggest oil exporter, follows the United Arab Emirates, Kuwait and Iraq.

The war in the Middle East has all but closed the Strait of Hormuz, the narrow waterway linking the Persian Gulf to the open seas, to maritime traffic following Iranian threats to shipping. That’s clogged up exports from major producing countries, sending oil sharply higher and rippling through the global economy.

UK motorists are already being hit by the surge in oil prices, and being encouraged to cut out non-essential journeys.

The RAC report that petrol has risen by 5p to 137.5p a litre since the Iran war began on Saturday 28 February. Diesel is up 9p to 151p a litre.

RAC head of policy Simon Williams says fuel prices are “unfortunately likely to keep on rising”, and advises against slamming down the accelerator and then hammering the brakes:

“Unleaded is almost certainly going to reach an average of 140p in the next week or so while diesel looks highly likely to climb to at least 160p a litre. The price of diesel is increasing more quickly now than at any point since the start of the Ukraine conflict. With oil at a sustained $100, petrol could rise towards 150p a litre - a price not seen since June 2024. Diesel could reach almost 180p, which would be a three-year high.

“We encourage drivers to continue filling up as normal but to shop around for the best prices using apps like myRAC as there can be big local differences between forecourts. Driving fuel efficiently by avoiding harsh accelerating and braking and ensuring tyres are inflated to the right pressures can help eke out every last mile and save money.”

Prices at the pump shouldn’t immediately rise when the crude price does, though. It takes time for a barrel of Brent to be refined, and for fuel to be transported to pumps.

Edmund King, AA president, points out prices shouldn’t rise overnight:

“As we predicted last week, the longer this conflict goes on, the more effect it will have on the cost of oil. Anytime Brent Crude passes $100 per barrel raises concern across the markets, for the haulage industry and drivers. One positive is that there are still reserves of oil out there and IEA intervention may release more supplies.

“In the meantime, there will be gradual increases in pump prices, but this shouldn’t happen over night as fuel has been purchased at previous prices. Our suggestion is that drivers should not change their refuelling habits but can consider cutting out some non-essential journeys and changing their driving style to conserve fuel. These measures linked to warmer weather means than drivers can ensure their fuel stretches further.

“There is still a wide disparity of fuel prices at the pumps so drivers can use the AA App or Government’s fuel finder to find the best pump prices close-by.”

Financial markets are also expecting the European Central Bank to raise eurozone interest rates this year, to fight the inflationary hit from pricier oil.

The money markets are now fully pricing in a quarter-point rise in ECB rates by July this year.

Bloomberg reports that swaps [derivatives that measure investor expectations for interest rates] imply around a 70% probability of two 25-basis-point rate increases by the ECB this year, compared with the one move that was priced on Friday.

UK chancellor Rachel Reeves is speaking to the Bank of England “on a daily basis”, Sir Keir Starmer has said this morning, as he tries to calm fears about the impact of the energy crisis.

Speaking at a community centre in London, the prime minister says:

The job of government is obviously to get ahead, to look around the corner, to work with others, and the chancellor speaks to the governor of the Bank of England on a daily basis, with looking cross-departmental within government, assessing the risks, monitoring and talking to our international partners as well about what more we can do together to reduce the likely impact on people here and businesses here, of course.

But it is important to acknowledge that that work is needed, because people will sense, you will sense I think, that the longer this goes on, the more likely the potential for an impact on our economy, impact into the lives and households of everybody and every business.

And our job is to get ahead of that, to look around the corner, assess the risk, monitor the risks, and work with others in relation to that.

Our Politics Live blog has more details:

The US crude oil has now slipped back below the $100 a barrel level, now changing hands at $99.30 a barrel.

That’s still a jump of 7.8% today, but lower than the $119.50 a barrel seen when markets opened overnight.

Brent crude, the international benchmark, is still over $100 though – up 10% at $102.27 a barrel.

That follows this morning’s reports that G7 finance ministers are preparing to discuss the release of emergency oil reserves, to ease fears of shortages.

Investors may have also noted comments from US energy secretary Chris Wright overnight, who said the recent surge in oil prices reflects a temporary “fear premium” tied to the Iran war.

Wright argued that the jump in oil prices was unlikely to persist because global energy supplies remain adequate.

Speaking on CNN’s State of the Union on Sunday, Wright said the conflict’s disruption to energy markets and shipping routes should be short-lived.

“The oil is there.”

“You’re seeing a little bit of fear premium in the marketplace. But the world is not short of oil today or natural gas.”

[Reminder, flows through the strait of Hormuz, which carries 20% of global oil and gas, have pretty much dried up]

It might be a serious mistake for central banks to respond to the oil price shock by raising interest rates.

Chris Beauchamp, chief market analyst at IG, explains:

“Stock markets have finally woken up to the implications of the Iran war, as oil hits three figures for the first time in four years. Having remained remarkably complacent last week, it looks like the rush for the exits has begun in earnest. Even high-flying defence stocks are being hit hard in London today, a sign that investors are no longer concerned about potential upside, but instead are focusing on protecting their profits, opting to sell now and sit out the volatility for the time being.”
“The morning has already seen markets begin to price in rate hikes by the ECB and the Bank of England. But that seems odd given the major hit to consumer spending that is about to make itself felt – this is a supply-driven shock, not some huge surge in demand. Policymakers may well have learned the wrong lesson from 2021, and risk setting off a much deeper recession if they get too trigger-happy on rate hikes.”

After an hour’s trading, European markets are still firmly in the red.

• UK’s FTSE 100: down 200 points or 1.9% at 10,087 points

• German DAX: down 548 points or 2.3% at 23,043 points

• French CAC: down 198 points or 2.5% at 7,795 points

Fears of a stagflationary shock last seen half a century ago are hitting markets today, reports Neil Wilson, investor strategist at Saxo UK:

A 1970s oil shock? Perhaps. The global economy is a lot less dependent on the price of a barrel than it was then – oil intensity has declined steadily since the 70s.

But clearly there are fears of a global economic slowdown and inflation crisis which is roiling global markets after a weekend of further escalation in the Middle East war. The 1970s crisis led to the 80s bull market – will it also create the roaring 20s bull market? For the moment, financial markets are concerned about a 1970s-style stagflation situation first.

Inflation fears mean UK short-term government bonds are on track for their worst day since former prime minister Liz Truss’s mini-budget roiled the markets in September 2022.

With prices tumbling this morning, the yield (or interest rate) on UK two-year bonds has jumped by as much as 37 basis points (0.37 percentage points) to 4.239%.

That, Reuters reports, puts two-year yields on course for the biggest one-day increase since Truss’s brief tenure, when plans for unfunded tax cuts and energy bill support sparked a surge in bond yields and sent the pound down to a record low.

Such a large move in two-year bond yields underlines how investors have ripped up hopes of cuts to UK interest rates.

Earlier this year, two cuts to interest rates in 2026 were expected – the market is now indicating that borrowing costs are more likely to rise this year (see earlier post).

Fears that the jump in the oil price will spark an inflationary surge are hurting government bonds.

With prices falling, the yield (or interest rate) on government debt is rising, sharply.

The benchmark 10-year UK bond yield is up 9.5 basis points (0.095 percentage points) to 4.756%, its highest level since early October last year.

This highlights how the crisis is putting pressure on the UK’s economy, and its public finances.

Kathleen Brooks, research director at XTB, says:

The UK is paying for natural gas than our European neighbors, so it is natural that our bond market sell off could be worse than Europe’s today.

Oil companies are among the few risers on the FTSE 100 index this morning, with Shell (+1.7%) and BP (+1.4%) benefitting from the surge in crude prices.

Continental European stock markets have joined the global sell-off too, with

Germany’s DAX index dropped by 2.5% in early trading, France’s CAC 40 shed 2.4% and Spain’s IBEX lost 3.1%, amid alarm over the surge in oil prices.

This has pushed the pan-European Stoxx 600 index has dropped by 2% at the start of trading, to its lowest since December, Reuters reports.

The London stock market is open, and shares are tumbling.

The FTSE 100 index of blue-chip shares has dropped by 179 points or 1.75% at the start of trading to hit 10,106 points.

That looks to be its lowest level since mid-January, as the Iran war wipes out most of the gains recorded this year.

Mining stocks such as Anglo American (-6.2%) and Antofagasta (-5%) are among the fallers, along with Rolls-Royce (-5%) whose jet engine business will suffer from a slump in travel.

Any lingering hope that the Bank of England might cut interest rates this month have been crushed by the surge in oil prices.

The money markets indicate that there is a 99% probability that the BoE leaves rates on hold at its next meeting, on 19 March.

Before the Iran war began, a rate cut had been an 80% chance, but policymakers are now expected to wait to see how the conflict develops.

Looking further ahead, the markets indicate the Bank is more likely to raise rates than cut them this year. The money markets are pricing in 15 basis points of increases (0.015 percentage points) to Bank Rate by December.

Optimism among some investors that the Iran conflict might end quickly has been dashed by the further escalation seen over the weekend.

Mohit Kumar, economist at investment bank Jefferies, says there had been a sense of complacency around the geopolitical impact, but now there is “some forced selling as investors reassess their positions”.

Kumar told clients that the war has “taken a turn for the worse over the weekend”:

Bombing of oil depots in Iran not only sent oil prices surging but also shows the shift in war strategy. Qatar indicated that war will force Gulf countries to stop energy exports within weeks. The attack on the desalination plant suggest that the human cost of the war is likely to increase over the coming days. Iran has confirmed Mojtaba Khamenei as its new Supreme Leader, a move that is unlikely to be acceptable to the US. Iran increased its missile attack over the weekend, though some reports suggest that it may limit its attacks on other gulf countries. FT reported that G-7 countries may discuss emergency oil reserve release to help with oil prices.

Kumar added that the choice of Mojtaba Khamenei as the new Supreme Leader shows that Iran would be willing to carry on the war further and negotiations would not be easy.

Japan’s prime minister has said her country will consider steps to cushion the economic blow from rising fuel costs caused by the conflict in the Middle East including curbing gasoline prices.

Prime minister Sanae Takaichi told the Tokyo parliament:

“Many people are worried about rising gasoline prices.

Taking this into account, the government has been considering since last week what steps it can take.”

“We’re considering steps to avoid gasoline prices from rising to levels intolerable for the public.”

Takaichi added that such measures could be funded by tapping reserves.

Oil has slipped back from its earlier highs, following a report this morning that G7 countries will discuss a potential joint release of emergency oil reserves later today.

According to the Financial Times, G7 finance ministers will hold a call at 8.30am New York time (12.30pm UK time) with the International Energy Agency to discuss the impact of the Iran war.

The FT says:

Three G7 countries, including the US, have so far expressed support for the idea, according to the people familiar with the talks. The 32 members of the IEA hold strategic reserves as part of a collective emergency system designed for oil price crises.

One person said some US officials believe a joint release in the range of 300mn-400mn barrels — 25 to 30 per cent of the 1.2bn barrels in the reserve — would be appropriate.

This has helped to cool the panic in the energy markets, somewhat. Brent crude is now trading at $106.73 a barrel, having peaked at $119.50 early this morning – but still up 15% today.

US president Donald Trump has claimed that the “short term” rise in the oil price is a “very small price” to pay for peace.

Posting on his Truth Social site, as the war with Iran entered its 10th day, the US president wrote:

Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace. ONLY FOOLS WOULD THINK DIFFERENTLY!President DJT

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Stock markets are tumbling today after the oil price surged over $100 a barrel for the first time in four years.

Crude prices rocketed last night as soon as Asia-Pacific financial markets opened for the new week, with US crude and Brent crude both nearing $120 a barrel in frenzied trading.

Oil is on track for its biggest daily jump since the turmoil of the Covid-19 pandemic, after at least five energy sites in and around Tehran were hit by strikes, prompting accounts of “apocalyptic” scenes in the Iranian capital.

Kuwait’s national oil company also announced a precautionary production cut amid retaliatory attacks by Iran, and there were reports that output from Iraqi oil production from its main southern oilfields has fallen by 70%.

With traders betting that the Middle East confict will lead to supply disruptions, the jup in the oil price is threatening an inflationary surge that would hurt economics around the world and create a new cost of living squeeze.

The stock market response has been brutal this morning. Japan’s Nikkei has plunged by almost 5% today, while South Korea’s Kospi has shed 6.5%. Australia’s S&P/ASX 200 has dropped by 2.85%.

European and US stock markets are all set for losses too.

Ipek Ozkardeskaya, senior analyst at Swissquote, says hopes for peace have waned after Mojtaba Khamenei, the second son of the late Iranian supreme leader Ayatollah Ali Khamenei, was chosen as his successor.

Ozkardeskaya says this decision that did not please the US at all, adding:

The choice suggests that Iran will not back down to the US, and that means a potentially prolonged war in the Middle East – which is home to about 50% of global oil reserves and around 40% of the world’s natural gas reserves.

About 20% of the world’s oil and LNG flows through the Strait of Hormuz, which is presently closed, making it one of the most critical energy chokepoints in the global economy.

The agenda

• 12.30pm GMT: G7 members and IEA to hold call to discuss the impact of the Iran war

• 2pm GMT: Eurozone finance ministers to hold Eurogroup meeting