Fears are mounting about the economic impact of the Iran-Israel conflict today as energy prices rise and trade routes face disruption.

Rachel Reeves admitted a 10 per cent spike in oil and gas costs and threats by Tehran to close the Strait of Hormuz were ’cause for concern’.

In TV interviews this morning, the Chancellor stressed energy costs were still lower than ‘a few months ago’ – but said the potential fallout for UK plc was partly driving the UK’s calls for de-escalation.

Ms Reeves dodged questions on whether her already-delicate spending plans would be smashed by the crisis, insisting Britain has a ‘strong economy’. 

The comments came as former BP boss Lord Browne warned oil prices would ‘go up a long way’ if Iran shut the Strait of Hormuz. 

Deutsche Bank has suggested that such action could see Brent crude hit $125 a barrel – compared to around $74 now.

Former Chancellor Lord Hammond told Sky News that the government was not in a good position to respond to serious disruption because Ms Reeves had not rebuilt the Treasury’s reserve.

Rachel Reeves admitted a 10 per cent spike in oil and gas costs and threats by Tehran to close the Strait of Hormuz was a ’cause for concern’

An explosion in Tel Aviv, Israel, as the clashes with Iran ramp up

Iranian politicians have been calling for the 30-mile-wide Strait of Hormuz, which links the Persian Gulf to the Arabian Sea, to be shut

Deutsche Bank has suggested that problems in the Straits of Hormuz could see Brent crude hit $125 a barrel – compared to around $74 now

Ms Reeves told Sky News: ‘We’ve already seen in the last few days, for example, oil and gas prices begin to go up’.

‘Over the course of this week, oil and gas prices, oil prices have gone up by just over 10 per cent, they’re still down compared to a few months ago but of course we’re keeping an eye on that,’ she said.

‘And at the same time, as you say trade routes are very important through the Middle East and we’ve seen disruption there in the past, partly because of the Houthi attacks for example.

‘And so that is a cause for concern.’

Pressed how bad the situation could be, she said: ‘It is very early days and things are moving quickly. But when we urge for de-escalation in the region that is in part because of the lives at risk… but also because what happens in the Middle East affects us here at home.

‘It’s why in the Spending Review this week we invested heavily in our defence to keep our country safe.’

Ms Reeves told the BBC: ‘We’re obviously, monitoring this very closely, as a government.

‘You can see from the chart that energy prices, oil prices, are still lower than they were at the start of this year.

‘But there’s absolutely no complacency from myself or the Treasury.

‘And as well the concerns are around shipping routes, both for oil and gas exports, but also more widely, because as so much goods trade passes through the Middle East, so obviously we’re following this closely.’

Ms Reeves confirmed the UK is deploying military assets to the region to ‘protect ourselves’ and ‘potentially to support our allies’.

She noted that in the past Britain has ‘helped protect Israel’ from ‘incoming strikes’.

Across Israel, air raid sirens sent residents into shelters as waves of missiles streaked across the sky and interceptors rose to meet them (pictured: the effects of an overnight strike in Ramat Gan, Israel)

‘I’m not going to comment on what might happen in the future, but so far, we haven’t been involved, and we’re sending in assets to both protect ourselves and also potentially to support our allies.’

Even before the Middle East flare-up, economists were warning that more tax rises looked ‘almost inevitable’.

Ms Reeves was accused of laying out a ‘fantasy’ Spending Review last week despite the finances being under huge pressure from stalling growth, demands for more funding for defence, and Labour revolts over benefits.   

Lord Hammond told Sky News: ‘What she should have been doing of course a long time ago is rebuilding our reserve. But she hasn’t done that…

‘If there’s an economic shock we will be in a much more difficult position in responding to it.’

He added: ‘It’s only if the situation becomes long term sustained that I think there is a risk we could see serious economic disruption.’

Iranian politicians have been calling for the 30-mile-wide Strait of Hormuz, which links the Persian Gulf to the Arabian Sea, to be shut.

The strait, which is jointly controlled by Iran and Oman, is a vital artery for the world’s fossil fuels. A fifth of all oil shipments pass through it, as well as a third of all liquified natural gas.

Ms Reeves was accused of laying out a ‘fantasy’ Spending Review last week despite the finances being under huge pressure from stalling growth, demands for more funding for defence, and Labour revolts over benefits

Closing it or disrupting the flow of ships, as Iran has threatened in the past, would strangle the supply of oil and gas on global markets, increasing the price of fuel.

A blockade would also put pressure on the British economy and people’s wallets as consumers and firms absorb higher energy costs.

While it would be hard for Iran to close the strait entirely, it could disrupt oil shipments by attempting to seize tankers that strayed into its waters.

Shipping firms are already reluctant to pass through. Frontline, the world’s fourth-largest oil tanker firm, is refusing contracts that use the strait.