Oil jumps after Trump rejects Iran plan to reopen Hormuz

Oil prices rose sharply on Monday after President Donald Trump rejected Iran's latest proposal to reopen the Strait of Hormuz, raising fears that the flow of oil through one of the world's most important shipping lanes could be delayed further.

Brent crude, the international benchmark, climbed as high as 108.83 dollars a barrel during Monday's trading before easing back. It was trading at about 106.89 dollars later in the day, up about 2.5 per cent from the previous session.

Why Hormuz matters

The Strait of Hormuz, a narrow channel between Iran and Oman, links the Persian Gulf to the open ocean. A large share of the world's seaborne oil, as well as liquefied natural gas from Qatar, normally passes through it. Disruption to shipping there has driven energy prices sharply higher this year.

Costs ripple outwards

The effects are being felt far beyond oil markets. Shipping rates have soared since the conflict began, with the cost of moving a 40-foot container from the Far East to northern Europe reaching about 4,100 dollars.

In Britain, higher energy costs are feeding into household bills. Ofgem's new price cap, which takes effect on Thursday, raises the typical dual fuel bill by about 4 per cent to 1,723 pounds a year, driven mainly by higher gas prices.

A worry for the Bank of England

The Bank of England has warned that higher energy prices will push inflation up over the coming months, from 3.1 per cent in August to slightly above 4 per cent early next year. Three of the nine members of its Monetary Policy Committee voted to raise interest rates this month, and the path of oil prices will be watched closely ahead of the next decision on 5 November.

Markets on Monday

In London, the FTSE 100 opened slightly higher on Monday morning, while sterling strengthened to about 1.326 dollars. Energy companies tend to benefit from higher oil prices, while airlines and businesses that use a lot of fuel are hit by rising costs.