- Brent crude climbed above $105 a barrel on Thursday.
- US petrol is averaging more than $4.36 a gallon, while diesel is above $6.
- A wider conflict could put further pressure on energy prices and global borrowing costs.
Oil prices surged on Thursday as investors reacted to reports that President Donald Trump is considering renewed large-scale US military strikes against Iran, with Brent crude moving above $105 a barrel.
Brent rose almost 5 per cent to around $105 a barrel, while US West Texas Intermediate crude climbed more than 4.5 per cent to around $92. Reuters reported that the move was also being driven by increased attacks on shipping in the Gulf and Strait of Hormuz, alongside concerns about disrupted US oil production.
The market reaction went beyond crude. Diesel futures rose sharply, while heating oil, a proxy for jet fuel, also climbed. US Treasury yields moved higher as investors worried that more expensive energy could keep inflation elevated. The 10-year Treasury yield was around 5.32 per cent, close to levels not seen since 2002.
US stock futures fell, with technology shares among those under pressure as investors weighed the possibility of higher inflation and interest rates.
Why has oil jumped above $105?
The immediate trigger is growing concern about the Iran conflict and the possibility that Washington could resume large-scale strikes.
The Atlantic reported that Trump is considering military action before the US midterm elections, while officials are discussing possible options. No final decision has been made, and the scale or timing of any potential operation remains uncertain.
That uncertainty is enough to unsettle oil markets because the conflict is already affecting one of the world's most important energy routes.
The Strait of Hormuz carries roughly 20 per cent of global oil supplies, according to Reuters. Attacks on commercial shipping have increased, raising concerns that further escalation could disrupt deliveries even more.
There are also other supply pressures. Hurricane-related disruption has forced some US oil producers to suspend Gulf operations, while US crude and diesel inventories have fallen.
The result is a market that is already unusually sensitive to any new military development.
Bank of America global commodities head Francisco Blanch warned in September that if restrictions on oil flows continued towards the end of the year, Brent could trade between $95 and $120 a barrel. A wider conflict that damages major energy infrastructure could push prices as high as $150, he said.
What does this mean for petrol, diesel and borrowing costs?
American motorists are already feeling the impact.
The national average price of regular petrol stood at about $4.36 a gallon on October 8, according to AAA. Diesel was averaging about $6.28 a gallon.
Higher oil prices can feed through into transport, manufacturing, food and other consumer costs because fuel is an input across large parts of the economy.
Diesel is particularly important because it powers much of the freight and logistics network. Persistently expensive diesel therefore has the potential to raise the cost of moving goods, while higher jet-fuel costs can add pressure to airlines and airfares.
The shock is also reaching financial markets.
Higher energy prices can push inflation expectations upwards, making investors less confident that central banks will be able to cut interest rates quickly. That can drive government bond yields higher, increasing borrowing costs for businesses and households.
The US 10-year Treasury yield has already climbed above 5.3 per cent. UK borrowing costs have also risen sharply, with the 10-year gilt yield reaching 5.527 per cent on Thursday, its highest level since 2007.
That matters for mortgages, corporate borrowing and government finances, meaning an oil shock can spread well beyond the petrol station.
Could renewed US strikes push oil even higher?
The US has not yet decided to resume large-scale combat operations against Iran. But any substantial escalation could increase the risk to oil production, pipelines and shipping routes.
The Strait of Hormuz is particularly important. Even if oil production itself remains intact, attacks or restrictions affecting tankers can make transporting crude significantly more expensive.
The cost of shipping US crude to Asia has reportedly soared to about $77 million per voyage, compared with an average of roughly $9.2 million for the same route in 2025. That shows how much the conflict has already changed the economics of moving oil around the world.
There is also a political dimension for Trump. The US midterm elections are less than a month away, meaning higher petrol and diesel prices could become a particularly sensitive issue for voters.
For now, markets are reacting to the possibility of escalation rather than a confirmed new US military campaign. But with oil already above $100, the direction of prices could depend heavily on what happens next around Iran and the Strait of Hormuz.
The International Energy Agency is meanwhile accelerating the release of emergency oil stocks, including measures aimed at easing record-high diesel prices. But the intervention has so far done little to remove the market's underlying concerns about supply.
