Oil just cracked $100 a barrel for the first time since May, the Middle East is on fire, and Marco Rubio has decided the Iranians just aren't dealmaking material. Great news for everyone trying to buy groceries, fill up their tank, or, you know, not watch inflation come roaring back like it never left.
How We Got Here in 60 Miserable Seconds
Brent crude, the global benchmark for oil prices, surged more than 6% on Thursday according to BBC News, capping off several days of increases that followed the collapse of a ceasefire between the US and Iran. The whole thing had briefly looked like it might calm down. Oil prices had actually been falling after the temporary ceasefire, dropping back to pre-conflict levels from before the US and Israel launched military action against Iran on February 28. Then the ceasefire fell apart.
This week, Secretary of State Marco Rubio declared that Iranian leadership was 'not ready to make a deal.' Which is a very diplomatic way of saying we're back to square one, except now oil is $100 a barrel and your gas station is doing great.
The latest trigger was Houthi militia in Yemen attacking oil tankers in the Red Sea, hitting a key export route that Saudi Arabia uses to bypass the Strait of Hormuz. The BBC reports this has reignited fears over global energy supplies that markets had been quietly hoping were overblown. They were not overblown.
Your Pump Price Is Already Screaming
If you've filled up a tank in the last few weeks and winced, you're not imagining it. UK petrol prices have risen by 5p a litre since the start of July alone, hitting almost £1.56, with diesel averaging £1.72 a litre, according to the RAC. In the US, average gasoline prices have crossed $4 a gallon again, up from $3.92 just a month ago, per motorist advocacy group AAA.
And here's the part that should really annoy you: it doesn't stop at the pump. Jonathan Raymond, investment manager at Quilter Cheviot, told the BBC that 'more expensive fuel and energy can ripple through the wider economy, increasing costs for businesses and ultimately feeding through into the price of food and other goods.' So yes, your petrol costs more, and your pasta will too. Eventually everything does.
UK gas prices have also quietly climbed to around 150p per therm, up from about 98p at the end of June. That's a 50% increase in under a month. The kind of number that makes energy company executives sleep very well and everyone else considerably less so.
Central Banks Are Now in a Genuinely Terrible Position
Inflation had actually been coming down in a way that felt almost real. The BBC reports it fell to 2.6% in the UK through June and 3.5% in the US, driven partly by cheaper fuel costs. Central banks were starting to look like they might actually thread the needle. Then this.
Raymond spelled out the bind for the BBC: if energy prices stay elevated, 'policymakers may come under pressure to keep interest rates higher for longer or even raise them.' The Bank of England has already held rates at 3.75% for four straight meetings. Capital Economics chief UK economist Paul Dales told the BBC he thinks another hold is 'almost certain.' Any hope for cuts next year depends entirely on energy prices easing, which depends on a conflict that has shown zero signs of cooling.
In the US, newly appointed Federal Reserve chair Kevin Warsh told Congress last week that the Fed has 'no tolerance to persistently elevated inflation.' He held rates between 3.5% and 3.75% at his first meeting and said he's committed to 'restoring price stability.' Which puts him directly in the crosshairs of a president who has made crystal clear he expects rate cuts, conflict or no conflict.
Trump, Warsh, and the Interest Rate Pressure Campaign
Let's not skip past this part. Trump spent the better part of Jerome Powell's tenure publicly demanding rate cuts and treating the Fed's independence like a minor inconvenience. He pushed Powell out, got Warsh installed, and made his expectations known. The BBC reports Trump 'has made it clear he expects Warsh to fulfil his demand for reductions in borrowing costs for Americans.'
Warsh, to his credit so far, has not played ball. He told Congress he has no tolerance for persistent inflation and held rates at his first opportunity. But the pressure campaign from the White House has not ended just because the Fed chair changed. And with oil at $100, inflation refusing to die, and a war showing no sign of resolution, Warsh is going to keep hearing from a president who thinks interest rates are a personal favor owed to him.
The Dingo Take
Here is the thing about oil hitting $100 a barrel: it didn't happen in a vacuum. It happened because the US stepped up military strikes against Iran, the ceasefire that briefly existed collapsed, Houthi fighters decided to start targeting Red Sea tankers again, and Marco Rubio went on television to explain that nobody on the other side wants to make a deal. This is a policy choice with consequences, and those consequences now include $4 gas, higher grocery bills, and central banks that are trapped between fighting inflation and avoiding a recession.
The people most insulated from $100 oil are the people making the decisions that got us here. The people least insulated are the ones getting the 'higher transportation costs passed on to consumers' that every investment manager loves to mention in a quote before moving on to the next talking point. Mortgage holders, borrowers, anyone buying food or fuel in the next six months: you are the ones absorbing this. The bill always lands somewhere, and it never lands on the people who wrote it.
Trump wanted a confrontation with Iran. He got one. He also apparently wants cheaper borrowing costs, lower prices, and a booming economy. You cannot conduct an open-ended military campaign that spikes global oil prices and also get those things. Physics doesn't care about campaign promises, and neither does Brent crude at $100 a barrel.
