FTSE 100 share index records biggest fall since November as Iran war drives up oil and gas prices – as it happened

Time for a recap:

Global energy, bond and equity markets have been rattled by the outbreak of war in the Middle East last weekend.

The Brent crude oil price is up 6.3% in late trading in London, at $77 a barrel, on concerns that supplies through the strait of Hormuz are being disrupted following the US-Israel war with Iran.

UK and European gas prices have surged by around 40% today, after Qatar’s state-run energy company shut down liquefied natural gas production at the world’s largest export facility after it was targeted in an Iranian drone attack.

Economists warned that higher energy prices could drive up inflation, hurting hopes of cuts to interest rates.

The money markets now indicate there is only a 51% chance that the Bank of England lowers borrowing costs this month, down from 80% last week.

Inflation fears hit the prices of sovereign debt today, pushing up government borrowing costs.

Global stock markets have fallen, with airlines, cruise operators and banks among the fallers.

In London, the FTSE 100 share index fell 1.2%, its biggest drop since November. There were steeper losses across Europe, with Germany’s DAX down 2.4%.

Stocks fell at the start of trading in New York, but have now partially recovered, with the Dow Jones industrial average down just 0.2%.

Investors are anticipating that the conflict could last for weeks.

Economists at Investec say:

The big question now is what happens next. Indeed there is a total lack of clarity over the medium-term, given that President Trump has not coherently articulated the US’s exact ultimate goal or how to achieve it. But there are two main US areas of interest.

Firstly, Trump has loosely called for regime change by calling on ordinary Iranians to rise up against the Tehran government, but there appears to be little in the way of a plan, at least publicly, on how that might be achieved. Whilst we are only on day three, even with the death of Ayatollah Khamenei and a number of Iran’s leadership figures, the Iranian establishment appears to still be very much in control.

Secondly, addressing Iran’s nuclear programmes had clearly been a focus running up to this weekend, so dismantling this and some of Iran’s other missile capabilities are also likely to be an aim. But whether this can be achieved through air power alone remains to be seen. In the aftermath of last June’s Midnight Hammer operation that saw US bombers strike Iranian nuclear enrichment facilities, President Trump claimed the mission a complete success and that Iran’s nuclear capabilities had been obliterated. However as later assessments had judged, capabilities were degraded, but not destroyed, raising questions over whether this latest operation will be any different.

More cynically Trump’s goals could include attempts to control Iranian energy assets, similar to what has happened in Venezuela or to distract attention from domestic issues.

Thousands more flights were cancelled on Monday as the turmoil in global air travel caused by the US-Israel war on Iran continued, with hundreds of thousands of passengers stranded.