The recent flare-up between Israel and Iran briefly shook global financial markets, pushing up oil prices and renewing fears of costlier energy and inflation. Though prices have since eased, analysts warn the situation could still have far-reaching effects on consumers and the global economy.
Oil prices surged in the immediate aftermath of the missile and drone exchanges between the two countries. Brent Crude, the global benchmark, jumped above $78 per barrel on Friday before retreating to around $74.50. Despite the pullback, crude remains $10 higher than it was a month ago.
Such volatility is not unusual, given oil’s sensitivity to geopolitical events. However, concerns remain that extended conflict could reignite inflationary pressures last seen during Russia’s invasion of Ukraine in 2022.
“If oil stays above $80 or climbs higher, that could eventually translate into higher costs for petrol, food, manufacturing, and even holidays,” said David Oxley of Capital Economics. He noted that a $10 increase in oil typically adds about Ksh 13 (7p) per litre at the pump, though the overall impact depends on how long prices remain elevated.
Beyond oil, gas prices also edged higher following the attacks, adding to broader concerns over energy inflation. While gas price changes take longer to affect households—due to regulatory caps and market structure—the ripple effects could still emerge over time.
The Strait of Hormuz, a key shipping route for nearly 20% of the world’s oil, remains a critical flashpoint. Experts like Richard Bronze of Energy Aspects caution that any disruption there could significantly escalate oil prices.
Still, analysts say a prolonged surge in energy prices is not inevitable. The current global economic slowdown and spare production capacity in oil-rich nations like Saudi Arabia and Brazil could help temper price spikes.
Economist Mohammed El-Erian warned that another major energy shock could hit the global economy hard. “It’s a bad shock at a bad time,” he said, citing ongoing uncertainties within the global economic system.
While a return to $100 oil is not the most likely scenario, the world remains on alert. “In a week’s time, it might have all blown over,” Oxley added, “but the risk premium is here for now.”
Written By Rodney Mbua
