Oil prices rose sharply on Monday as Middle East attacks increased concerns over crude supply and shipping routes. The rise renewed debate over whether the Bank of England could raise interest rates before the end of 2026 as higher energy costs add pressure to UK inflation.
Brent crude futures rose about 2.8% to USD 107.54 a barrel in early Monday trading, while West Texas Intermediate gained 2.9% to USD 102.93. Both benchmarks remained above USD 100 after oil gained about 8% last week.
Saudi Arabia temporarily shut its East-West Pipeline after a drone attack. The route carries crude from the Arabian Gulf to the Red Sea port of Yanbu and allows Saudi exports to avoid the Strait of Hormuz. Industry sources said the outage could place up to 4% of global oil supply at risk if the pipeline stays offline.
Tensions also rose around the Strait of Hormuz after a projectile struck a vessel on Sunday. The UK Maritime Trade Operations said the incident caused a fire and forced the crew to abandon the ship. Iranian authorities later said an unidentified munition hit an Iranian commercial vessel off the country’s coast.
Meanwhile, Houthi forces reached Perim Island near the Bab el-Mandeb Strait, another major oil transit route. The move added concern over shipping through the Red Sea. Omani Foreign Minister Badr Albusaidi announced the postponement of planned talks between Gulf states and Iran, reducing expectations of an immediate agreement on Hormuz shipping.
Higher oil prices have changed expectations for UK interest rates in financial markets. The Bank of England will announce its next policy decision on September 17. The bank rate currently stands at 3.75%, and the central bank has kept it unchanged since the conflict in the Middle East began earlier this year.
The bank's July meeting ended with a 6-3 vote to keep rates unchanged, while three members supported a quarter-point increase to 4%. Since then, energy prices have risen further. Markets now see a greater chance of a rate increase later this year, although a September move is still not the main expectation.
Bank of England Governor Andrew Bailey has cautioned against treating a rate increase as guaranteed. He told lawmakers that he wanted to dispel the idea that policymakers had a ‘secret plan’ for rates. He said future decisions would depend on economic data and events in the Middle East.
Bailey also said market pricing included a risk premium linked to concerns about further energy price increases. At the same time, MPC member Megan Greene has raised concern that a longer oil shock could keep inflation expectations elevated. Traders will now watch UK inflation, labour market data and oil prices before the September 17 decision.
The outlook for crude prices remains closely tied to the East-West Pipeline, shipping security and regional diplomacy. ING strategists said it was ‘unclear how severe any potential damage was' to the Saudi pipeline. A faster restart or renewed Gulf-Iran talks could reduce supply concerns, while further disruptions could keep oil prices elevated.