UK stock market calms but oil prices rise over fears Iran war may drag on
By BBC, March 4, 2026The UK stock market rose on Wednesday despite continuing energy price volatility over fears the US-Israel war with Iran may drag on.
In London, the FTSE 100 index edged up 0.65% alongside rises in markets in Germany and France, contrasting with Asian shares, which fell for a third day.
South Korea’s and Thailand’s stock markets were forced to temporarily halt trading after plunging by more than 8% and triggering so-called circuit breakers, which aim to avoid panic selling.
Oil prices increased by more than 1% to about $83.50 a barrel, as Saudi Arabia’s defence ministry reported an attempted drone attack on the Ras Tanura oil refinery – the second time this week it has been targeted.
Brent crude prices have jumped by 15% since Israel and the US began bombing Iran on Saturday and Tehran responded by attacking neighbouring Arab countries.
Both oil and gas prices have soared after vessels near the crucial Strait of Hormuz shipping lane have come under attack.
At the same time, state-run QatarEnergy suspended production of liquefied natural gas (LNG). It is one of the biggest producers in the world.
Gas prices continued to be volatile on Wednesday, hovering around 127p per therm by midday, below Tuesday’s high of 170p.
Around a fifth of the world’s oil and gas usually flows through the Strait of Hormuz – a narrow waterway between Iran and the United Arab Emirates (UAE).
But traffic through the Strait of Hormuz has almost entirely halted following Iran’s threats to “set fire” to ships.
On Wednesday, the UK Maritime Trade Operations Centre reported that a vessel had been struck “by an unknown projectile” in the strait, causing a fire in the engine room.
Earlier another ship was hit by a projectile close to the UAE, with authorities investigating both incidents.
According to Lloyd’s List Intelligence, about 200 tankers have been effectively stranded, while insurance premiums – particularly on vessels considered American, British or Israeli – have risen significantly.
On Tuesday, President Donald Trump said the US would provide risk insurance “at a very reasonable price” and use the Navy to protect oil tankers “if necessary”.
However, experts warned his assurances might not be enough to ease companies’ concerns, and the president did not detail how an escort through the strait would work.
Lindsay James, investment strategist at wealth management firm Quilter, told the BBC the European market stability was partially due to Trump’s comments.
But she believed markets had taken an “optimistic view” of the situation because, in reality, Iran was well equipped to repel any shipping that wanted to use the strait.
“I think when you consider that shipping companies, insurers, crew members, potentially, are probably going to be reluctant to do this … It’s not really feasible to think that that is going to be the solution to reopening energy supplies,” she said.
“The solution is going to be a peace agreement, and it feels like we’re some way away from that.”
US Treasury Secretary Scott Bessent said on Wednesday that crude oil markets “are very well supplied”, adding: “We have a series of announcements that we’re going to be making.”
Stock Market
Stock markets have fallen sharply since the US and Israel attacked Iran over the weekend, and many Asian stock markets have been hit particularly hard as the region imports large amounts of energy from the Middle East.
In one of its worst days in recent decades, South Korea’s benchmark Kospi index closed 12% lower on Wednesday, while the Nikkei 225 in Japan lost 3.6%. Hong Kong’s Hang Seng index dropped 2.5%.
James Hosie, oil and gas equity analyst at Shore Capital, said roughly 80% of Qatar’s LNG goes to Asian markets.
“Those consumers will now be bidding up the price of LNG cargoes to secure alternative supplies, as is now being seen with the spike in Asian LNG prices,” he said.
“There obviously is a knock-on effect to the price of gas elsewhere, including the UK, where LNG helps balance demand with supply.”
There were some mitigations with oil, Hosie said, including substantial reserves held by the US and China. But he added: “The big uncertainty now is how long this disruption can last.”
David Miles, committee member at the Office for Budget Responsibility, the independent forecaster, told the BBC’s Today programme that if oil and gas prices remain elevated, it would add to inflation in the UK.
However, he said it was important to note the increases were “nowhere near as large” as those seen after Russia launched its full-scale invasion of Ukraine four years ago.
“If prices stayed where they were at the moment, probably we’re talking about an impact on the level of prices in the UK, maybe of 1% or so,” Miles said.
Fuel surge expectations
He added that current expectations of where energy prices will be in the next six to 18 months are not as large, which is important because those expectations will help determine the July Ofgem price cap.
In the UK, Chancellor Rachel Reeves is set to meet with North Sea energy bosses on Wednesday afternoon to discuss the implications of the Middle East conflict, “and work with them to manage this uncertain period”.
James told the BBC that investors are forecasting higher inflation in the UK, “and that could take one of the interest cuts that was pencilled in off the table”.
Markets had projected that the Bank of England could cut interest rates twice this year as inflation eased – although it remains above the central bank’s 2% target.
The Bank of England will announce the latest interest rate decision on 19 March.