As stock markets plummet, G7 nations will hold an emergency meeting on oil.

 

Oil facilities in Tehran were hit by airstrikes at the weekend (Image: Getty Images)

Monday's emergency meeting of the G7 nations will focus on the escalating US-Israeli conflict with Iran, which has caused stock markets to plummet. As a result, oil prices have risen above $100 a barrel. To discuss the conflict's economic impact, finance ministers from leading industrialized nations, including UK Chancellor Rachel Reeves, will meet. On Monday, fears of a prolonged disruption to energy supplies along the crucial shipping route through the Strait of Hormuz caused global oil prices to reach nearly $120, and the FTSE 100 share index in the United Kingdom decreased by 1.3%. According to the Financial Times, a coordinated joint release of petroleum from reserves will be discussed at the G7 meeting. If reserves are released by IEA members it would be the first time since 2022, when action was taken following Russia's full-scale invasion of Ukraine.

Read More: Asia governments to cap fuel prices as oil costs jump

Major disruption to energy supplies from the region threatens to push up prices for consumers and businesses around the world.  Rising inflation could lead to fewer interest rate cuts by central banks.

 About a fifth of the world's oil supply is usually shipped through the Strait of Hormuz.  But traffic through the narrow passage has all but halted since the war started more than a week ago.

 Mojtaba Khamenei was named Supreme Leader of Iran on Sunday, indicating that hardliners are still in charge of the country more than a week into the conflict. The US and Israel launched fresh waves of airstrikes across Iran over the weekend, hitting multiple targets including oil depots.

 In the meantime, Iran targeted Gulf states' energy infrastructure. Saudi Arabia claimed overnight that it had stopped and destroyed two waves of drones that were heading toward a significant oil field.

The dreadful scenario of millions of barrels of crude and liquefied gas trapped in the Gulf and unable or unwilling to transit the Straits of Hormuz had calmed the markets last week. But the escalations over the weekend, alongside scenes of destruction of energy infrastructure both in Iran and across the Gulf, saw the markets take rapid fright.

 The price of Brent crude rose by more than 25% on Monday morning in Asia, reaching $119.50 a barrel at one point before recovering to approximately $107. Similar shifts occurred in the price of US West Texas Intermediate (WTI) crude, which was trading around $104 per barrel.

As stock markets plummet, G7 nations will hold an emergency meeting on oil(Image: BBC)

"The question everyone is asking themselves is, what is the duration of this conflict?"  Paul Gooden, head of natural resources at NinetyOne Asset Management, told the BBC's Today programme.

 "The longer it goes on, the more nervous the oil markets are going to be."

 He added that the oil price could rise to a level where "you see so-called demand destruction", where consumers cut back their consumption of oil, which he considered to be $120-$150 a barrel.

 "I believe that the oil price could temporarily be in that range. I don't think it can stay there... at some point there'll be a resolution."

 Gas prices also jumped.  When trading began on Monday, UK gas prices for month-ahead delivery rose by nearly 25% to 171p per therm, before falling back to approximately 156p per therm. Gas prices have now doubled since the start of the Iran war, but they are still well below the 640p peak that was reached in 2022 after Russia invaded Ukraine.

European stock markets fell after Asia's steep decline earlier. The Dax index in Germany decreased by 1.6%, while the Cac 40 index in France decreased by 2%. The majority of shares on the FTSE 100 in London were down, with the exception of oil giants BP and Shell, which saw increases. Earlier, Japan's Nikkei 225 index dropped 5.2%, while South Korea's Kospi index closed down 6%.  At one point trading on the Kospi was halted for 20 minutes by a so-called circuit breaker - a mechanism designed to curb panic selling.

 The cost of borrowing from the UK government has continued to rise. On Monday, the yield - or interest rate - on two-year government bonds, which indicates how much it would cost to borrow money for two years, rose to 4.12% from 3.87%.

 Prior to the conflict, the benchmark 10-year bond yield was around 4.3%, but it has since increased to 4.76 percent.

According to Adnan Mazarei of the Peterson Institute for International Economics, the rise in oil prices was to be expected due to the fact that some Gulf countries have stopped producing oil and there are signs of a prolonged conflict in the region. "People are realising that this won't end quickly," he said, adding that the promises of insurances and objectives laid out by the US are "becoming more unrealistic."

 Concerns about rising oil prices have been repeatedly dismissed by US President Donald Trump, who campaigned on lowering living costs. "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., World, Safety, and Peace," he wrote on his Truth Social platform on Sunday. Only liars would think otherwise!" Concerned about rising domestic pump prices brought on by the war, his Energy Secretary Chris Wright told US broadcasters on Sunday that Israel, not the United States, was targeting Iran's energy infrastructure. According to AAA data, the price of regular gasoline in the United States increased by 11% last week to $3.32 per gallon.

Source: BBC