Global oil prices have surged over 50% since June 2026, reaching above $108 (£80) per barrel, driven by escalating conflicts in the Middle East. The Houthis in Yemen and Saudi Arabia have disrupted key oil shipping routes, including the Strait of Hormuz and the Bab al-Mandab Strait, causing supply shortages and price spikes. Petrol and diesel costs have risen sharply in the UK, US, and Europe, with UK natural gas prices nearly doubling since July. The UK's energy regulator, Ofgem, forecasts a 25% increase in the domestic price cap for households in January 2027, adding £440 annually to typical energy bills.

Analysts point to a significant reduction in global oil and gas supplies as the primary cause of the price surge. Before the US-Israeli conflict with Iran began in late February, about 20% of global oil and liquefied natural gas passed through the Strait of Hormuz. This flow collapsed after Iranian attacks on commercial shipping and energy facilities in the Gulf, alongside a US blockade of Iran's ports. Saudi Arabia attempted to reroute oil via the Red Sea using its East-West pipeline, which has a capacity of 3.6 million barrels per day. However, the pipeline was attacked by drones, which Saudi Arabia blames on Iran-backed militias in Iraq. The Houthis also attacked Saudi oil facilities, causing temporary shutdowns and further supply disruptions.

Despite US Energy Secretary Chris Wright claiming the pipeline will resume operations 'very soon,' most independent analysts believe the Strait of Hormuz remains significantly obstructed. The US Energy Information Administration reported that around 21 million barrels per day of oil and oil products passed through the Strait before the conflict, but Kpler estimates this has dropped to about 8.6 million barrels per day by late August. The Houthis have also captured strategic territory near the Bab al-Mandab Strait, a key transit point for about 5% of global oil supplies. Concerns persist that these shipping routes could face further disruption from Iran and its proxies, exacerbating the energy crisis.

The International Monetary Fund (IMF) warns that a sustained 10% increase in oil prices could raise global inflation by 0.4% and reduce GDP growth by up to 0.2%. The Bank of England estimates a similar 10% rise in oil prices would increase UK inflation by 0.5% and cut GDP growth by 0.4%. The recent oil price surge is about five times greater than the scenarios used in these models, raising concerns about the potential for another inflationary shock. US President Donald Trump has claimed the diesel price rise is mainly due to the Russia-Ukraine War, not Iran, but most analysts argue the broader Middle East conflict is the primary driver of the current energy crisis.

The situation remains uncertain, with no official response from Iran or the US provided in the evidence. While a peace agreement between the US and Iran could potentially ease tensions and lower oil prices, the current conflict has already caused significant economic strain. The global market remains vulnerable to further disruptions, and the long-term impact on inflation and economic growth is yet to be fully assessed. As the situation evolves, the effects of the oil crisis will likely be felt across households, businesses, and governments worldwide.