Since the outbreak of conflict in the Middle East, the value of Britain’s leading companies has plummeted by more than £200 billion. This downturn comes as oil prices surge towards $120 a barrel, raising alarm over a potential surge in energy costs and setting the stage for another challenging week on global markets.

The FTSE 100 index took a significant hit, dropping 1.73 percent, or 180 points, to 10,103 in early trading on Monday. This decline follows a loss of over 600 points from the previous week, illustrating the market’s ongoing volatility.

Meanwhile, the broader FTSE All-share index, encompassing the FTSE 100 and numerous other companies listed on the London stock exchange, has seen its value diminish by more than 7 percent since hostilities in Iran ignited regional tensions.

This financial setback has erased £212 billion from the market value of British companies, affecting millions of investors whose savings are tied up in shares through pensions, ISAs, and other investment vehicles.

Experts caution that the markets are now grappling with what could be considered the “biggest crisis since Covid,” a period that saw economies worldwide falter as lockdowns took hold in early 2020.

Analysts warned markets are now facing the ‘biggest crisis arguably since Covid’ sent them into freefall in early 2020 as economies around the world went into lockdown.

Donald Trump says the spike in oil prices is a ‘small price to pay’ 

Susannah Streeter, chief investment strategist at Wealth Club, said: ‘Panic has hit equity markets after oil prices rocketed as fears materialised about a big squeeze in global supplies. 

‘The worsening situation in the Middle East has the potential to bring a toxic combination of shocks to economies. Inflation is set to rise sharply, given the spike in energy prices, which may lead central banks to keep interest rates higher for longer.

‘Higher energy prices and borrowing costs will be a drag on growth, and the concern is that governments lack the financial firepower, given high debt levels, to deliver meaningful support to companies and consumers. 

‘The spectre of stagflation is hovering, with high inflation and stagnant growth looking increasingly likely unless there’s a rapid de-escalation in the Middle East.’

Oil prices surged above $100 a barrel in the early hours as investors priced in further disruption with the Strait of Hormuz effectively shut, and key suppliers signalling cuts to production over the weekend.

There are reports that Saudi Arabia could also start to cut its output as its storage fills up.  

Brent crude rocketed to nearly $120 a barrel overnight before settling at around $107 on reports that G7 ministers will discuss a joint release of petroleum from reserves.

Oil prices are now around 60 per cent higher than they were before the war started, but Donald Trump has said the spike in prices is ‘a small price to pay’.

In a social media post, he said: ‘Short-term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for U.S.A., and World, Safety and Peace’.

Analysts expect oil prices to rise further if disruption continues, with Goldman Sachs expecting prices ‘to exceed 2008 and 2022 peaks’ and head above $150 by the end of the month if the Strait of Hormuz remains shut.

Chris Beauchamp, chief market analyst at IG said: ‘Investors have woken up to an oil crisis. It may have taken a week, but oil prices have finally crossed the $100 mark that everyone expected would happen if Hormuz was closed. The market is now facing its biggest crisis since Liberation Day, and arguably since Covid.’

Asian markets suffered sharp falls overnight, with Japan’s Nikkei 225 down 5 per cent while South Korea’s Kospi plunged as much as 9 per cent.

European markets were also swept up in the sell-off with investors braced for a rocky ride on Wall Street when trading in New York resumes. 

The Stoxx Europe 600 index plunged 2 per cent, while Germany’s Dax is down 2.4 per cent. US futures are pointing to losses of around 1.5 per cent, extending last week’s rout. 

There is mounting concern among investors that a prolonged conflict could lead to stagflation – slowing growth paired with rising inflation – or even recession, as rocketing prices push central banks to tighten policy.

Money markets have already effectively ruled out the Bank of England cutting rates in this month’s meeting, with an increasing chance of a rate hike later this year. 

Government bonds are also under pressure, extending their losses from last week. The 10-year gilt yield rose 0.13 percentage points to 4.76 per cent, while the two-year gilt yield rose 0.19 percentage points to 4.06 per cent.

This will pile pressure on Rachel Reeves, who may also be pushed to consider an energy bailout as gas prices skyrocket to near 2022 levels.

Already, energy firms have pulled many fixed tariffs for households – with warnings that Ofgem’s price cap will rise sharply in July, if the conflict continues.

This morning, UK gas futures surged over 20 per cent to 155.8p per therm, nearly double the level seen before the conflict started. Similarly, European gas prices are up around 20 per cent to €64/MWh, the highest level in three years.

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