Global energy markets and government borrowing costs have climbed sharply following a significant escalation in the Middle East conflict, with Brent crude oil surpassing $105 a barrel.
The surge follows reports of intensified military activity near the Strait of Hormuz, a critical artery for global oil supplies. On 10 September 2026, Brent crude futures reached $105.26 per barrel, representing a 4% jump in a single day. The price spike comes amid reports that Iran targeted ten vessels near the strait on Wednesday, following US strikes on five Iranian tankers.
The instability has had an immediate impact on UK financial markets. The yield on 10-year gilts—the interest rate the government pays on its debt, which often influences mortgage pricing—surged to 5.378%. This is the highest level recorded since July 2007, reflecting investor anxiety over persistent inflation and the cost of the conflict.
Energy and fuel prices
British wholesale gas prices have also seen a dramatic increase, rising above 203p per therm for the first time since December 2022. For motorists, the global volatility is already being felt at the pumps. As of 10 September, the average price for a litre of petrol in the UK reached 167.17p, while diesel climbed to 188.63p.
The sustained rise in wholesale costs is expected to keep pressure on household budgets as winter approaches.
The conflict, involving the US, Israel, and Iran, has been ongoing since late February 2026. Recent developments have significantly curtailed shipping through the Strait of Hormuz, leading to warnings that prices could reach $120 per barrel if disruptions persist, although some analysts suggest they could retreat to $85 by the end of the year if the situation stabilises.
Central bank response
The inflationary pressure caused by the energy spike has prompted international action. On Thursday, the European Central Bank raised interest rates to 2.5%, specifically citing the war as a driver of rising costs.
In the UK, the Bank of England is expected to keep interest rates steady at its meeting next week.
These economic headwinds come at a difficult time for the Treasury. The rise in gilt yields increases the cost of servicing national debt, potentially limiting the fiscal options available to the government.
While the UK House of Commons Library has noted that the conflict has severely hampered international trade routes, the full extent of the impact on the 2026/27 winter energy bills for British households remains to be seen.
