Global energy prices have spiked sharply again in recent days, driven largely by an escalating conflict between Yemen's Houthis and Saudi Arabia that has caused disruption across the oil industry.
Petrol and diesel costs have risen rapidly in most countries, while the wholesale price of natural gas used for heating homes and generating electricity has almost doubled in the UK and Europe since July. Economists are warning of a possible new inflationary shock to the world economy, which could push up interest rates, mortgage costs and the price of goods including food.
The global oil price is currently above $108 (£80) per barrel, up from $70 (£52) in June 2026 — an increase of roughly 50%. This has contributed to average UK petrol prices climbing above 170p a litre, the highest level since 2022 and up from 150p in July.
The near-doubling of UK natural gas costs has also fed into forecasts that the domestic price cap set by energy regulator Ofgem will rise by 25% in January, adding around £440 a year to a typical household's bill.
In the United States, the cost of a gallon of petrol has risen from $3.80 (£2.82) in July to $4.32 (£3.20), according to the AAA Gas Prices index. Diesel prices in the US have hit a record of more than $6 (£4.46) a gallon, higher than levels seen even after Russia's full-scale invasion of Ukraine in 2022.
Analysts say the main driver of the latest surge has been a reduction in global oil and gas supplies. Before the US-Israeli war with Iran began in late February, around 20% of both global oil products and liquefied natural gas supplies passed through the Strait of Hormuz, the narrow waterway connecting the Gulf and the Arabian Sea. That flow collapsed after February due to Iranian attacks on commercial shipping and energy facilities belonging to US allies in the Gulf, alongside a US blockade of Iranian ports.
Following the outbreak of war, Saudi Arabia increased its use of the East-West pipeline — which, according to maritime intelligence firm Kpler, has a capacity of 3.6 million barrels per day — to export oil via the Red Sea instead of the Strait of Hormuz. However, the pipeline was forced to shut down after a drone attack on Friday, which Saudi Arabia has blamed on Iran-backed militias in Iraq.
The Houthis separately attacked several Saudi oil facilities with drones and missiles last week, sparking fires that led to a temporary halt in operations.
Neil Quilliam of Chatham House said the pipeline could remain closed for up to eight weeks for repairs, although US Energy Secretary Chris Wright told broadcaster CNBC on Tuesday that it would be operating again "very soon". Despite the US government insisting fuel is flowing through the Strait of Hormuz at roughly pre-war volumes, most independent analysts judge that the waterway remains significantly obstructed.
Before the war, around 21 million barrels per day of oil and oil products passed through the Strait of Hormuz, according to the US Energy Information Administration. Kpler estimated this had fallen to about 8.6 million barrels per day by the end of August.
Over the past two weeks, the Houthis in Yemen have captured strategic territory from Saudi-backed pro-government forces close to the Bab al-Mandab Strait, another key trade chokepoint at the southern tip of the Red Sea that handled around 5% of global oil supplies before February. A further 5% of global oil supply normally leaves the Red Sea via the Suez Canal and a pipeline across Egypt to the Mediterranean.
The global market price of oil is rising partly on concerns that these shipping routes could face even more severe disruption from Iran and its proxies, similar to that seen at Hormuz. Before their recent advances on Yemen's south-west coast, the Houthis declared in July that they were enforcing a naval blockade of Saudi ships and ports, while stating they would not attack vessels from other countries passing through the Red Sea.
US President Donald Trump has said "the world's diesel price rise is mostly caused by the Russia/Ukraine War, not Iran". Analysts note the conflict — including Ukrainian drone attacks on Russian refineries — has placed pressure on diesel prices, given Russia's position as the world's second largest diesel exporter. However, most analysts judge that the wider Middle East conflict has been the larger contributor to the recent price spike.
Economists warn that sustained higher global energy prices typically translate into higher costs for households and weaker economic growth, reducing incomes and wages. The International Monetary Fund has estimated that a sustained 10% increase in oil prices raises global inflation by 0.4% and reduces global GDP growth by up to 0.2%.
The Bank of England has estimated that a 10% increase in the global oil price raises the UK inflation rate by 0.5% in the near term and reduces UK GDP growth by around 0.4%. The rise in the global oil price since June is roughly five times larger than the scenario used by the IMF and the Bank of England in their models assessing the impact of rising oil prices.
It remains possible that the global oil price could fall again if a peace agreement is reached between the US and Iran. After a preliminary deal was signed between the two sides in June, the oil price temporarily fell sharply to pre-war levels, having earlier reached as high as $120 a barrel.
