Global oil markets have reacted swiftly to escalating tensions in the Middle East as the United States and Israel continue their assault on Iran.

After oil tanker traffic through a key chokepoint, the Strait of Hormuz, stopped, the benchmark oil price, Brent crude, jumped about 6% to over US$77 a barrel. It initially spiked as high as US$82, its highest level since January 2025.

A roughly US$10 jump in a matter of days is a significant move and delivers an immediate inflationary jolt for oil-importing economies.

What does this mean for households, businesses and central banks?

Why oil still matters

Oil may no longer dominate the global economy as it did in the 1970s, but it remains embedded in modern production.

It feeds directly into petrol prices, diesel, aviation fuel and shipping, and shapes the cost of transporting and producing everything from food to manufactured goods. When oil prices rise quickly, the effects spread beyond energy markets.

Economists call this a “negative supply shock”: the result is production becomes more expensive. Companies can absorb higher costs or pass them on to consumers. In practice, they usually do both.

The result is an uncomfortable mix of higher inflation and slower economic growth.

The inflation impact will weigh on central banks

The most immediate effect is at the petrol pump. Higher crude prices lift fuel costs and push up headline inflation. For households already facing cost-of-living pressures, that can be felt quickly.

For example, when the price of oil goes up by $10 a barrel, the rough rule of thumb is that the price of gasoline for US drivers........

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