The price of oil has spiked once again after the United States launched a new wave of airstrikes on Iran, throwing the prospect of a Middle East peace deal into doubt again.
A barrel of Brent crude jumped 5% to $78, while WTI rose 4.8% to $74 as word of the attacks hit markets.
The FTSE 100 fell 1.4% to 10,515 in morning trading on Wednesday, while futures point to US stocks dipping by a similar amount when the market opens on that side of the Atlantic.
The US Federal Reserve has already been forced to take a more hawkish stance than was expected earlier this year due to stubborn inflation.
A fresh round of upward pressure on energy prices will only embed that position and leave little room for the rate cuts investors like to see, despite poor jobs numbers published last week.
Susannah Streeter, chief investment strategist at Wealth Club, said: ”A surge in oil prices has sparked worries about persistent inflation, with the Middle East tinderbox reigniting.
“Downbeat sentiment is spreading, with the FTSE 100 sharply lower and European indices deep in the red.
“The US military has attacked dozens of targets in Iran in retaliation for strikes on three tankers in the Strait of Hormuz.
“There’s a real sense of déjà vu unfolding, with the US and Iran appearing to take significant steps towards peace, only for the illusion to be shattered once again.”
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Dan Coatsworth, head of markets at AJ Bell, added: “Investors have been spooked in recent weeks by fears of excessive spending in the AI world and rich valuations in parts of the tech space, causing widespread profit-taking.
“If this trend continues, the likes of Anthropic and OpenAI might find it harder to muster up top-level support for their IPOs and their stock market listings could be delayed.
“It doesn’t help that the Middle East conflict has intensified again, causing oil prices to go back up.
“Major stock indices fell across most of Asia and Europe, including a drop in the FTSE 100.
“Not even BP and Shell’s gains off the back of a higher oil price could save the UK market. Pharma, miners, banks and tobacco acted as a major headwind for the index, suggesting that investors weren’t simply in risk-off mode; they were feeling particularly nervous.”
