European gas prices have rocketed 40 per cent since Friday after conflict erupted with Iran across the Middle East.
Stock markets fell today around the world, while oil prices surged and gold climbed after Iran stepped up reprisals following the US and Israel’s attacks that killed its Supreme Leader Ayatollah Ali Khamenei.
After the FTSE 100 hit record highs last week, the UK’s leading stock market index closed down 130 points, or 1.2 per cent, at 10,780.
Analysts fear a fresh bout of inflation driven by disruption to energy markets. Iran reportedly warned tankers on the Strait of Hormuz that no ships would be allowed to pass, while insurers cancelled policies and raised cover prices. Brent Crude Oil jumped 6.5 per cent to $77.86 today.
Gas prices shot up, with the EU natural gas measure soaring 40 per cent since Friday, after Qatar shut down liquified natural gas (LNG) production following Iran targeting it with drone strikes.
Neil Wilson, of Saxo Markets, said: ‘We are a long way off 2022 in terms of pricing but if LNG to Europe is effectively shut via Hormuz for a prolonged period we could see chaos. I am much more concerned about European natural gas prices than oil prices.’
Gold rose 0.3 per cent to $5,295, lifted by investors seeking assets considered safe havens and feared a fresh wave of inflation off the back of higher oil prices.
The Footsie’s decline was tempered by its energy, commodities and defence stocks. However, nervous investors will be watching markets closely, amid fears that the conflict could send shares tumbling.
German’s Dax was fell 2.4 per cent and France’s CAC 2.2 per cent. The US’s leading market, the S&P 500 reversed early losses to trade up 0.1 per cent at 5pm UK time.
A wave of attacks on Middle Eastern nations by Iran continued yesterday after the US and Israel hit targets across Iran on Sunday.
The FTSE 100’s relatively muted fall comes as the index is bolstered by its substantial weighting to energy companies, miners and defence.
These were buoyed by a higher oil price, greater demand for gold, and expectations of a continuing increase in defence spending.
Among the stocks that rose on the FTSE 100 this morning were BAE, up 5.3 per cent, Shell, up 2.6 per cent, and BP, up 2.6 per cent.
Airlines and banks were among the biggest fallers, with Barclays down 5.8 per cent, BA-owner IAG tumbling 5.4 per cent, , HSBC down 5 per cent, and easyJet down 3.6 per cent. Intercontinental Hotels also fell 4.5 per cent.
Gas prices leapt after Qatar’s state-run energy firm halted liquefied natural gas production.
In a statement, it said: ‘Due to military attacks on QatarEnergy’s operating facilities in Ras Laffan Industrial City and Mesaieed Industrial City in the State of Qatar, QatarEnergy has ceased production of liquefied natural gas (LNG) and associated products.’
European gas prices remain far below levels seen during the 2022 energy crisis but have risen beyond the level their level in early January, when they are typically high due to cold winter weather.
A prolonged spike could trigger a fresh bout of energy bill inflation, which will worry central bankers and could stall cuts to interest rates.
US gas prices are less exposed to global turmoil due to domestic production and rose around 5 per cent today.
The FTSE 100’s biggest risers at 1.30pm on Monday 2 March
The FTSE 100’s biggest fallers at 1.30pm on Monday 2 March
Richard Hunter, head of markets at Interactive Investor, said: ‘The sinister developments over the weekend have unsurprisingly had a debilitating effect on many asset classes, not least of which is uncertainty around the escalation and duration of the conflict.
‘At the eye of the storm was the potentially inflationary spike of the oil price at a time when central banks are still hoping that any further price rises could be contained.
‘Despite oil, defence and mining stocks providing a strong prop, the FTSE 100 was hit by a stronger wave of investor pessimism.’
The FTSE 100 had been flying high before the turmoil, hitting a series of record highs and knocking on the door of 11,000 points.
The FTSE 100 had been flying high before conflict with Iran erupted
Susannah Streeter, chief investment strategist at broker Wealth Club, said: ‘Investors are scuttling towards safe havens, seeking shelter as conflict widens in the Middle East.
‘Precious metals prices have ratcheted up again, with gold and silver increasingly sought after in these turbulent times.
‘Gold has reached a one-month high, after recording its seventh consecutive monthly gain in February – the best winning streak since 1973. Back then, a severe oil shock led to a flight to safe havens.
‘While oil prices have increased sharply, this is not yet mirroring the 1970s surge, when prices effectively quadrupled in just a few months after Gulf countries retaliated against US support for Israel in the Yom Kippur War.
‘However, with tensions escalating and uncertainty so high, it is far from clear how this current conflict will evolve, and prices could climb even higher.
‘This time around, other worries are also colliding to push up precious metals prices, including high debt levels, concerns over the Federal Reserve’s independence, and questions about the sustainability of the artificial intelligence boom.’
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