The inflation nightmare that plagued households across the world in the post-Covid period is returning with cruel timing as the Iran conflict drives oil above $91 a barrel and threatens another cycle of energy-driven price increases. For consumers who had only recently begun to see relief from the highest inflation in decades, the more than 25% weekly surge in crude oil — the biggest since the Covid-19 pandemic — represents a deeply unwelcome and psychologically damaging development.
The memory of the post-Covid inflation surge — in which energy prices were a central driver — is fresh in the minds of consumers and policymakers alike. Many households had only just begun to feel the benefit of declining energy bills and falling inflation when the current crisis erupted. The prospect of going through the same experience again — of energy bills rising, petrol costs surging, and the cost of food and other oil-dependent goods climbing — is generating real anxiety across the world’s major economies.
The drivers of the current surge are rooted in the Gulf energy emergency. Kuwait has cut oil production at storage-full fields, Saudi Arabia and UAE face the same crisis within 20 days, and Qatar’s LNG exports are disrupted following drone-strike damage. Qatar’s energy minister has warned of oil at $150 if all Gulf exporters halt production — a price at which the inflation consequences would be more severe than anything experienced in the post-Covid period.
The financial market response reflects the depth of the inflation concern. UK bond yields recorded their biggest weekly jump since the Liz Truss mini-budget crisis of 2022. Eurozone bond yields surged to their biggest weekly rise in over a year. Rate cut expectations in both the UK and eurozone collapsed, as the prospect of energy-driven inflation made monetary easing politically and economically impossible. For consumers hoping for mortgage rate relief, the collapse of rate cut expectations is directly damaging.
Stock markets across Asia, Europe, and the UK fell sharply, reflecting the economic damage that sustained high oil prices would inflict. Airlines warned of massive losses. Gold fell. The consumer inflation nightmare is not yet fully materialised — oil price rises typically take weeks to months to filter through to consumer prices — but the direction is clear. The Iran conflict’s oil shock has set the stage for another painful round of cost-of-living pressure on households around the world.