Oil smacked $85 a barrel this morning. First time we’ve seen that since July. Gas prices went absolutely nuts over the weekend, basically doubling. And stock markets? They’re getting destroyed everywhere you look.
All because the US and Israel decided it was time to escalate things with Iran.
Thing is, these aren’t just numbers flashing on traders’ screens. We’re watching global energy markets get turned upside down in ways we haven’t seen since Russia decided to invade Ukraine and sent the world economy into a tailspin. What kicked off as military strikes over the weekend has morphed into this full-blown mess that’s hitting everything from shipping lanes to what you’re gonna pay at the pump.
The Math Is Brutal
UK gas prices shot past 165p a therm on Tuesday. Haven’t seen numbers like that in three years. The benchmark closed at 138p, still up more than 20% from Monday alone.
But here’s where it gets wild. Gas prices literally doubled since Saturday when the air strikes started. We’re talking 100% increase in 72 hours. That’s not your typical market jitters – that’s pure panic.
Oil’s riding the same roller coaster. Brent crude briefly touched $85 a barrel before pulling back to $82.40. Still way up from Friday’s close of $76.30. That’s nearly 8% in three trading days, which is massive for oil.
“That’s the reason why we all hope this war will come to an end as soon as possible,” German Chancellor Friedrich Merz said after meeting with Trump at the White House.
Stock markets tell you everything you need to know about how spooked investors are. London’s FTSE 100 dropped 2.75%, losing 225 points to finish at 8,014. Germany got hammered worse, falling 3.44% and shedding 687 points.
France down 3.46%, dropping 271 points (at least on paper). But South Korea? They got absolutely crushed, dropping over 7% after being closed Monday for a holiday.
Energy stocks are taking a beating despite oil prices climbing. Shell dropped 4.2%, BP fell 3.8%, and TotalEnergies slumped 4.1%. Investors know higher prices don’t mean squat if you can’t actually get your product to market.
Currency markets are showing serious stress signals too. The dollar got stronger against most major currencies as everyone ran for safe havens. Gold jumped $45 to $2,678 per ounce – biggest one-day gain we’ve seen in three months.
Shipping Routes Are a Nightmare
About 20% of the world’s oil and gas normally flows through the Strait of Hormuz.
Today? Nothing’s normal.
Traffic has basically stopped after several ships got hit. Ebrahim Jabbari from Iran’s Revolutionary Guard made it crystal clear on state TV: ships shouldn’t come anywhere near the region or they’ll face “a serious response.”
Nobody’s buying that risk anymore. Can’t blame them.
“The Strait of Hormuz was effectively closed,” Sanne Manders from logistics platform Flexport told reporters. “We’re seeing vessels turning around mid-route rather than risk the transit.”
Want to hire a supertanker to move oil from the Middle East to China? That’ll cost you over $400,000 per day now. Double what it was last week. Triple the rates from a month ago. Some routes are hitting $450,000 daily, and that’s just the Baltic Exchange data we can see.
Insurance companies won’t touch these routes anymore. Lloyd’s of London – the world’s biggest insurance market – suspended coverage for vessels going through the Strait of Hormuz. Just like that. War risk premiums for ships already in the area jumped from 0.1% to 2.5% of cargo value overnight.
Do the math. A supertanker carrying $200 million worth of crude oil now faces $5 million in extra insurance costs. Those costs don’t just disappear – they get passed down the line until they land right in your gas tank.
Container shipping’s getting hit too. Maersk, the world’s second-largest container line, diverted 15 vessels away from the region on Tuesday alone. CMA CGM and COSCO did the same thing, rerouting ships around Africa’s Cape of Good Hope. That adds 10-14 days to shipping times and burns way more fuel.
How We Got Here
QatarEnergy, one of the world’s biggest gas exporters, shut down production after what they’re calling “military attacks” on their facilities. They’re not just stopping gas either. Aluminium, methanol, urea for fertilizer – all offline.
The timeline tells you everything. Saturday morning: US and Israeli forces launched coordinated strikes on Iranian military targets. Saturday afternoon: Iran promised retaliation. Sunday: Iranian proxies attacked shipping in the Strait of Hormuz. Monday: QatarEnergy suspended operations. Tuesday: Global energy markets in complete chaos.
QatarEnergy produces roughly 77 million tons of liquefied natural gas every year. That’s about 5% of global LNG supply. When they flip the switch off, prices spike everywhere.
Read that again.
The company also cranks out 1.6 million barrels of oil equivalent per day through various operations. Add that to the roughly 3.2 million barrels per day that normally move through the Strait of Hormuz from other producers, and you’re looking at serious supply disruption.
Iran’s not backing down either. The Islamic Revolutionary Guard Corps announced they’ve deployed additional naval vessels to patrol the strait. They’re calling it “defensive positioning” but everyone knows what that really means.
Look, the bigger picture here is Iran hit back after the US and Israeli strikes over the weekend. Now we’re watching a regional conflict turn into a global economic headache that’s spreading faster than anyone thought possible.
The UK’s Office for Budget Responsibility warned this escalation could have “very significant impacts on the global and UK economies.” Their fiscal forecasts just went out the window. The OBR specifically mentioned potential GDP impacts of 0.5-1.2% if this crisis drags on past Q2 2024.
Why Canadians Should Care
Sure, we’re not importing gas from Qatar or shipping oil through the Strait of Hormuz. But global energy markets don’t give a damn about borders.
When oil prices spike, everything gets pricier. Gas at the pump. Shipping costs for your groceries. Flying anywhere. Heating your house.
Canadian gas prices usually follow oil with a 2-3 week delay. Right now, we’re averaging $1.42 per liter across the country. If oil stays above $80, expect that to climb toward $1.55-$1.60 by mid-February.
And here’s the real kicker.
If inflation starts climbing again because of this mess, the Bank of Canada might think twice about cutting interest rates. That affects mortgages, loans, everything you borrow money for.
The Bank of Canada’s next rate decision is February 19th. Before this crisis hit, markets were pricing in a 75% chance of a 25 basis point cut.
Now? That’s dropped to 35%. Higher energy costs mean higher inflation, and the BoC won’t cut rates while inflation pressures are building.
We’ve been down this road before.
Remember when Russia invaded Ukraine in February 2022? Energy prices went through the roof and dragged everything else up with them. Canadian inflation hit 8.1% by June 2022, forcing the Bank of Canada into aggressive rate hikes that pushed our economy to the edge of recession.
Classic.
Canadian oil producers are making bank from higher prices, but that’s not necessarily good news for everyone else. Higher domestic energy costs hurt manufacturing, transportation, and pretty much every other sector you can think of.
Air Canada already announced they’re slapping fuel surcharges on international flights starting immediately. WestJet will probably follow. Those surcharges typically run $50-100 per ticket depending on how far you’re flying.
What This Means Going Forward
Grocery prices are another worry. Canada imports roughly 60% of its fresh produce, most of it shipped from warmer places. Higher fuel costs mean higher shipping rates, which get passed to you.
Food inflation, which had been cooling off, could pick up steam again.
Your Wallet’s Already Taking a Hit
Wondering when this hits your daily life? It’s already starting.
Alasdair Locke from Motor Fuel Group, the UK’s largest independent gas station operator, didn’t mince words: “With the price of oil going up, that’s inevitably going to feed through in due course to higher prices at the pump.”
How much depends on how long this drags on and how high prices climb.
UK households won’t see energy bill impacts until July thanks to their price cap. But fuel prices?
Those adjust way faster. British drivers could see petrol prices rise from the current average of 147p per liter to 160p within two weeks if oil stays high.
Then there’s this. Shipping companies are already talking about raising rates “for any shipping in the world” because they’re expecting higher fuel costs everywhere.
Hapag-Lloyd, one of the world’s largest container lines, announced emergency bunker surcharges on all routes starting immediately.
That’s $150-300 extra per container, depending on size and where it’s going. Those costs flow through to retail prices within 6-8 weeks.
Home heating costs are climbing too. Natural gas futures for February delivery jumped 18% on Tuesday alone. That translates to roughly $15-20 higher monthly heating bills for the average household if this keeps up.
The ripple effects just keep spreading (not a typo). Airlines are adding fuel surcharges. Trucking companies are tacking diesel surcharges onto deliveries. Even ride-sharing apps are thinking about temporary price adjustments to help offset higher gas costs for drivers.
Markets Keep Getting Crushed
The S&P 500 opened way down but managed to claw back some losses, closing down 0.9%. Japan’s Nikkei dropped 3.3%. Hong Kong and Shanghai both took hits, losing 2.8% and 2.1% respectively.
Asian markets are bracing for more pain overnight. Australia’s ASX 200 opened down 2.4% in early trading. Singapore’s Straits Times Index fell 3.1%.
Here’s the thing about oil versus gas markets. You can source crude from different places easier than you can redirect gas pipelines.
But when a major shipping route shuts down and a big supplier goes offline, flexibility only goes so far.
The VIX – Wall Street’s “fear gauge” – spiked above 28 on Tuesday. That’s the highest we’ve seen since the banking crisis last spring.
Shows you just how anxious institutional investors are about what comes next.
Bond markets are reflecting all this uncertainty too. Ten-year Treasury yields fell 12 basis points to 4.38% as investors ran for safety. German bunds saw similar moves, with yields dropping 15 basis points to 2.41%.
Energy sector stocks are caught in this weird spot. Higher prices should be good news, but operational disruptions and geopolitical risks are outweighing any price benefits. ExxonMobil fell 2.8% despite oil’s rally. Chevron dropped 2.3%.
Real question is how long this lasts. If it’s just days, markets might shake it off. If we’re talking weeks or months, we’re looking at a completely different economic picture.
Right now, investors are selling first and asking questions later. That’s usually what happens when geopolitics crashes into global supply chains.
Options markets are pricing in more volatility ahead. Oil volatility is at its highest since the early days of the Ukraine war. That tells you traders expect wild price swings to keep going for at least the next month.
What This Means Going Forward
This crisis is also showing just how dependent the global economy still is on Middle Eastern energy supplies. Despite years of talk about diversification and renewable energy transitions, this region still holds enormous power over worldwide economic stability.
Frequently Asked Questions
Why are gas prices rising so quickly?
The US-Israel conflict with Iran has disrupted major gas suppliers and shipping routes, causing prices to double since Saturday.
How will this affect Canadian consumers?
Higher oil prices lead to increased costs for gas, shipping, and heating, potentially slowing Bank of Canada interest rate cuts.
How long will these high prices last?
It depends on how long the Middle East conflict continues and whether major shipping routes like the Strait of Hormuz reopen.
