The price of oil shot up to $100 a barrel for the first time in two months
Surging oil prices could turn a “headache into a severe migraine” for Andy Burnham and his plans to tackle the cost of living crisis, analysts warn.
The price of oil shot up to $100 a barrel for the first time in two months after fresh attacks in the Red Sea threatened to escalate the Middle East conflict further.
The price rise came after US President Donald Trump warned that he will hold Iran directly responsible for further attacks by Houthi rebels on ships in the Red Sea.
In social media posts, he accused the Houthis of shooting at two Saudi Arabian ships overnight.
The President threatened to inflict a “major military punishment” on Iran and the Houthis if the attacks continue.
The Houthis had said they planned a naval blockade on Saudi Arabia around the Bab al-Mandeb are in the Red Sea, a key point for oil exports.
As a result, the oil price continued to lift higher amid concerns that an intensifying conflict between US-Israeli and Iranian forces would disrupt oil supplies further.
Susannah Streeter, chief investment strategist at Wealth Club, said that the crisis made matters more difficult for the Government.
If the conflict did deteriorate, she said, higher oil prices could filter through to goods and services.
“Obviously, that would counter the whole cost of living package the Prime Minister has already started to unveil,” she said.
“So while he's trying to give concessions to the hardest hit households, they're still likely to see a rise in energy bills and potentially housing costs.
“It’s a real test for the Government right now, because they're really trying to deliver for the electorate, and particularly those lower income families.
“But their hands are tied by international events that they have very little control over.”
She said policies such as the pause on VAT for domestic energy bills would help a little but warned events may be beyond the control of Number 10.
She said: “It's turning from a headache into a severe migraine.
“With no real relief available, Andy Burnham can make steps towards relieving the cost of living crisis, but, ultimately, they'll be overtaken by what happens in the Middle East, particularly with the Red Sea now coming into the picture.”
Analysts at Cornwall Insight have already warned that spiralling oil prices could cancel out the VAT cut.
Bills are expected to rise by two per cent when the price cap is re-assessed in October.
Economists at Oxford Economics said they think shipping disruption is now “increasingly likely” to continue, with forecasts that oil prices will be above $85 per barrel through the rest of the year.
Lucy Smith, senior investment manager at Killik & Co, said: “It’s a stark reminder of how quickly geopolitical tensions can feed into the energy markets.
“While this immediate spike is related to the Houthi attack rather than any new significant disruption to physical supply, an escalation in these attacks on any more critical shipping routes – or energy infrastructure – would increase concerns about the reliability of global flows, keeping prices elevated.”
