The FTSE 100 sank on Thursday as investors reacted to soaring oil prices after major oil and gas fields were struck in the Middle East, signalling a dangerous escalation in the conflict.
London’s leading index tumbled 1.9% as both sides targeted major oil and gas fields and increased fears of a substantial shock to global energy markets that could send waves through the global economy.
Susannah Streeter, Chief Investment Strategist, Wealth Club, said: “Fears of a sustained energy shock have resurfaced after the escalation in the Iran war sent oil and gas prices soaring.”
“The prospect of a longer, more drawn-out conflict is in sharp focus, as both sides ratchet up attacks on energy infrastructure. Downbeat sentiment is spreading fast, with London’s Footsie opening around 1% lower as investors assess the repercussions for the global economy.”
Concerns around an oil shock were compounded by the Federal Reserve’s interest rate meeting and press conference that offered little in the way of reassurance for investors worried about the trajectory of rates.
The Bank of England turned the screws on markets when it said it expected inflation to rise while keeping rates on hold on Thursday.
“The Fed and Bank of England are in a state of limbo while they wait to see if the Middle East crisis will trigger a long-lasting inflation shock,” said Dan Coatsworth, head of markets at AJ Bell.
“There simply isn’t enough data to make an informed decision on whether to put up rates to deal with the likely aftershock of the Middle East crisis – namely, a new inflation spike.”
The degree of uncertainty was reflected in the extent of losses for FTSE 100 companies on Thursday. At the time of writing, 97 of the FTSE 100’s 100 constituents were trading in the red.
Miners were among the most heavily hit with Fresnillo sinking 7.8% and Anglo American losing 7.3%.
NatWest shares were down 7%, but this also included the impact of the stock trading ex-dividend.
BP was the top riser, in part because of higher oil prices, but largely due to news it had offloaded a refinery in its push to streamline the business and reduce costs.
“BP’s decision to offload the Gelsenkirchen refinery in Germany is another positive step toward streamlining the business and reducing debt.,” explained Derren Nathan, head of equity research, Hargreaves Lansdown.
“The immediate impact on the debt pile hasn’t been revealed, but plans to reduce capacity at this outdated facility have been touted previously, and margin improvement has been hard to come by. The disposal removes a further $1bn of operating costs, while elevated commodity prices may have helped BP gain a better price.”
BP shares were 2.5% higher at the time of writing.