Oil Hits $110 a Barrel, a Five-Month High, as Middle East Tensions Escalate

What happened on Friday

Brent crude touched $110 a barrel on Friday, its first time at that level since May, as traders priced in the risk that conflict in the Middle East could further tighten global supplies. Brent futures settled $3.94 higher — a 3.7 per cent jump — at $109.86 a barrel, the highest close since 19 May. US West Texas Intermediate crude rose $3.44, or 3.5 per cent, to close at $101.41, crossing $100 for the first time since 17 September. Over the week, Brent gained 4.9 per cent and WTI surged 10.4 per cent, its strongest weekly showing since July.

The rally rippled through financial markets. US stocks fell, with the S&P 500 down more than 1 per cent and the Nasdaq Composite sliding 2 per cent by mid-afternoon, while energy shares surged: the S&P 500's top five performers on the day were all energy names, and the sector ETF XLE rose 4.8 per cent on the week.

It is the latest leg of a rally that began this spring, when US and Israeli strikes on Iran in late February prompted the closure of the Strait of Hormuz. A fragile agreement briefly reopened the waterway, but the truce has been fraying for weeks — and on Friday it snapped audibly.

What drove the spike: two wars, one market

The spark was the Middle East. Iran-backed Houthi rebels have continued pounding Saudi Arabia with missile and drone strikes, and rumours of attacks on Saudi energy infrastructure resurfaced on Friday, sending prices off their earlier lows. Energy consultancy Energy Aspects said unverified Israeli reports suggested Iran might be preparing a pre-emptive strike after unusual military movements detected by Western intelligence — developments that, it said, reinforced its view that persistent escalation risks would keep prices supported.

A Saudi-led coalition said it intercepted and destroyed a ballistic missile aimed at the Red Sea port of Yanbu — a facility built precisely so the kingdom can bypass the Strait of Hormuz and keep oil flowing to international markets. Consultants Rapidan Energy Group said initial reports showed no damage to Yanbu's infrastructure, but the message to the market was clear enough: even the backup routes are in the line of fire.

The second front is the Strait of Hormuz itself, the narrow waterway through which roughly a fifth of the world's seaborne oil passes. Attacks around the strait have surged over the past ten days, with Iran saying it is stepping up strikes in response to a US blockade of its ports and tougher sanctions imposed last month. Two cargo ships sank near the strait after attacks this week, vessel strikes in the waterway have hit a record high this month, and Kpler analysts reported that intensified Iranian attacks drove Gulf crude flows sharply lower — with only a slower, more uneven recovery in Hormuz flows expected without a comprehensive political deal.

Meanwhile the war in Ukraine added a second supply shock. Ukraine struck Russia's Ryazan refinery on Thursday, knocking out a primary crude distillation unit, after President Zelenskyy declared his country was abandoning a week-old ceasefire covering energy sites announced by President Trump. Russia is traditionally one of the world's largest diesel exporters, and Ukrainian attacks on its refining capacity have taken much of it offline — forcing buyers to scramble for alternative supplies in a market with little spare capacity to offer.

Which supply routes are at risk

The Strait of Hormuz remains the single point of failure in global energy. Around a fifth of global oil shipments transit the waterway; cargo volumes had been recovering toward pre-war levels, topping 100 million barrels of crude last week, but the latest attacks threaten that fragile rebound. Every vessel strike raises freight and insurance costs, and those costs feed directly into the price of every barrel that gets through.

The Red Sea corridor is the backup under pressure. Yanbu and the shipping lanes through the Bab el-Mandeb strait are Saudi Arabia's and much of the region's alternative export route — which is precisely why a missile aimed at Yanbu rattled traders. Initial reports indicated no damage, but the interception was a reminder that the workaround is not immune to the conflict.

Then there is the diesel market, the often-overlooked engine of the global economy. Diesel powers farming, freight and heavy industry, and its price has been rising even faster than petrol in recent months. Russian refinery outages, combined with Russian strikes on Ukrainian energy assets, have squeezed a market where buyers forced to look elsewhere find, in the words of one analyst, no clear opportunities to easily expand diesel production. US distillate inventories — which include diesel and heating oil — sit at 102.6 million barrels, down 12 per cent year on year, according to the Energy Information Administration.

What it means for consumers and inflation

Higher crude prices eventually reach the pump. US regular petrol averaged $4.32 a gallon on Friday morning — before the day's rally — and analysts expect the latest jump to add further pressure in the coming days. Diesel futures rose more than 1 per cent on Friday, bad news for hauliers, farmers and anyone buying transported goods.

The inflation implications stretch well beyond fuel. Energy costs feed into food prices, air fares, manufacturing and logistics, and central banks watching for signs of persistent inflation will read $110 oil as a risk rather than a blip. The US Department of Energy's decision on Friday to request an exchange of up to 17 million barrels from the Strategic Petroleum Reserve — on top of an earlier agreement to loan 172 million barrels as part of a wider 400-million-barrel release coordinated with International Energy Agency members — shows how seriously Washington is taking the threat to prices.

The politics are sharpening too. With the US midterm elections on 3 November, the White House has fewer and fewer options to tame energy costs — a vulnerability opponents will not hesitate to exploit at the ballot box.

For households outside the United States, the pain is compounded by currency effects: because oil is priced in dollars, a strong dollar makes every barrel more expensive in local currency — worth checking against live rates on our currency converter. And as geopolitical risk rattles markets, some investors rotate toward traditional safe havens — you can follow one of them on our gold rate page.

What the market expects next

Not everyone thinks $110 is justified. Middle Eastern exports have largely recovered and global oil inventories remain comfortable, argued Julius Baer's Norbert Rucker, who called prices above $100 increasingly stretched relative to fundamentals. On that view, the rally is mostly fear premium — and fear premiums can unwind fast.

Others see momentum with further to run. BOK Financial's senior vice-president of trading Dennis Kissler said 'we're still in a bull market,' citing unreliable Hormuz flows, Russian diesel that is not reaching the market, and surprisingly large US fuel inventory drawdowns. Several banks have lifted their near-term price forecasts.

The honest answer is that the market is now hostage to events. A de-escalation in the Gulf or a durable energy ceasefire in Ukraine could unwind the risk premium quickly; another tanker hit or a refinery knocked out could send prices higher still. For now, traders are betting the risk runs one way — and consumers everywhere will feel it at the pump.

FAQs

Why did oil jump so sharply on Friday specifically?

Friday combined several catalysts at once: a surge in attacks around the Strait of Hormuz over the previous ten days, the interception of a ballistic missile aimed at Saudi Arabia's Yanbu port, Ukraine's strike on Russia's Ryazan refinery, and a US request to tap the Strategic Petroleum Reserve. With the weekend approaching, traders also paid up for protection against escalation while markets were closed — a classic recipe for a sharp Friday rally.

How high could oil prices go from here?

Analysts are split. Bears argue prices above $100 look stretched against fundamentals, since Middle Eastern exports have largely recovered and global inventories are comfortable. Bulls point to unreliable Hormuz flows, offline Russian refining and falling US fuel stocks, with several banks lifting near-term forecasts. Much depends on whether the next headline is a ceasefire or another tanker attack.

When will higher crude reach petrol prices where I live?

The pass-through typically takes one to three weeks, as refineries and retailers work through existing stocks. The effect is larger for countries that import fuel priced in dollars when their own currency is weak — which is why it is worth watching exchange rates alongside the barrel price. Governments can soften the blow by adjusting fuel levies, but that squeezes their own budgets.

Does $110 oil usually push gold higher too?

Often, yes. Geopolitical crises tend to lift both: oil on supply fears and gold on safe-haven demand as investors seek shelter from volatile equities. The two do not always move together — gold also responds to interest rates and the dollar — but Middle East escalations have historically been friendly to both. Our gold rate page tracks the local picture as it develops.

What would bring oil prices back down?

Three things would help most: a comprehensive political deal that restores secure flows through the Strait of Hormuz, a durable energy ceasefire between Russia and Ukraine that brings refining capacity back online, and further coordinated reserve releases by the US and IEA members. Stronger-than-expected demand destruction — consumers simply driving less — would also cool prices, though analysts note US demand has held up so far.