The world is reeling from unprecedented massive shock as the oil prices surged past $110 (£82.74) a barrel for the very first time in four years.
The recent oil prices have demonstrated a 25 percent surge with Brent on track for a record one-day gain in the midst of Iran conflict with the US and Israel.
This energy shock driven by the crisis in the Middle East has rippled through agricultural and metal markets while the gold prices have witnessed a downward spiral.
Energy markets in turmoil
On Monday, Brent crude in Asia was almost 24 percent higher at $114.74 while Nymex light sweet was up by more than 26 percent at $114.78.
The production cuts in Kuwait, Iraq, and the UAE, coupled with the closure of the Strait of Hormuz shipping lane, have created an acute supply crunch.
Given the turbulent situation in the Middle East, some analysts claim that if the shutdown in the Hormuz persists until the end of March, the oil prices could see a surge above the record-breaking $150 a barrel.
The spike in oil prices will also send the shockwaves across the various industries, such as food and fertiliser supply chains.
Gold is in free falling state
Being a safe haven amid global uncertainties, gold is showing unusual behaviour as the yellow metal more than 2 percent. The drop in gold prices is driven by the strengthening US dollar, rising bond yields and inflation fears to delay interest rate cuts.
Owing to higher oil prices and looming cuts in interest rates, US bond yields and the dollar have gained value, making gold look like less of an investment right now.
According to an independent analyst Ross Norman “The dollar is absolutely roaring away, as are US Treasuries, and that’s providing a strong headwind to gold and particularly silver.”
Colin White, CEO of Verecan Capital Management, said, “One of the issues with gold right now is it had such a run recently and the speculation has reached a fever pitch.”
“It’s more fragile right now at this moment in time. So that’s what kind of goes in the face of, ‘It’s always a safe haven’ — nothing’s always anything,” White added.
Agricultural and industrial ripple effects
Agricultural markets led by edible oils also witnessed sharp gains due to prevalent usage of vegetable oils such as palm and soybean oil in biofuels.
Malaysian palm oil rose 9 percent and Chicago soybean oil soared to its highest since late 2022, buoyed by the crude oil rally.
Wheat prices also spiked to its highest since June 2024 and corn prices hit a 10-month high.
When it comes to metals, Aluminium hit a 4-year high at $3.544 per ton following force majeure declarations from major smelters in Bahrain and Qatar.
Is the economic worst yet to come?
The economic analysts warn of a bleak outlook of an economy dominated by lasting damage. The combination of high energy prices and a strong dollar creates headwinds for global growth.
Tony Sycamore, IG market analyst, said, “The violent reaction stems from the markets seeing no obvious offramp in the escalating Middle East conflict, now a high-stakes standoff where neither side appears willing to blink first. The risk of more lasting economic damage continues to build by the day.”
