Saudi Oil Crisis Drives Global Energy Prices to Record Highs

The global oil price has spiked alarmingly, driven largely by the escalating conflict between Yemen's Houthis and Saudi Arabia, causing chaos for the oil industry. Petrol and diesel costs have risen rapidly in most countries, while the wholesale price of natural gas has almost doubled in the UK and Europe since July.

Analysts say the main driver behind the price surge is a reduction in global oil and gas supplies. Before the US-Israeli war with Iran began in late February, about 20% of both global oil products and liquefied natural gas supplies passed through the Strait of Hormuz. This flow of energy collapsed after February due to Iranian attacks on commercial shipping and the energy facilities of US allies in the Gulf as well as a US blockade of Iran's ports.

The Saudi East-West pipeline, which has a capacity of 3.6 million barrels per day, was forced to shut down after it was attacked by drones on Friday. The Houthis separately attacked several Saudi oil facilities with drones and missiles last week, causing fires that led to operations being temporarily halted. Neil Quilliam of Chatham House said the pipeline could be closed for up to eight weeks for repair.

Economists warn that higher global energy prices can lead to even higher prices for households and weaker economic growth, which translates into lower incomes and wages for people. The International Monetary Fund has estimated that a sustained 10% increase in oil prices increases global inflation by 0.4% and reduces global GDP growth by up to 0.2%. The Bank of England has estimated that a 10% increase in global oil price increases the UK inflation rate by 0.5% in the near-term and reduces UK GDP growth by about 0.4%.