14th September 2026
The latest escalation in the Middle East is beginning to look less like a temporary oil-price spike and more like a threat to the wider global economy.
The Houthis in Yemen have expanded their attacks while gaining control of territory along Yemen's Red Sea coast and reaching the strategically important island of Perim near the Bab el-Mandeb Strait. At the same time, Saudi Arabia has shut down its East-West oil pipeline after an attack. The pipeline normally provides an important alternative route for moving Saudi oil towards the Red Sea without passing through the Strait of Hormuz.
The immediate reaction has been in the oil market.
Brent crude has now moved above $100 a barrel again and was reported at around $108 on Monday, after rising more than 3% following the latest attacks. The Saudi pipeline carries up to about four million barrels a day, equivalent to roughly 4% of global oil supply. Saudi Arabia's alternative export facilities are understood to have only limited stocks available if the pipeline remains out of action.
That is important because oil is not just another commodity.
Higher oil prices feed directly into petrol and diesel prices, transport costs, heating and electricity costs. They also increase the cost of producing and transporting almost everything else.
And that is where fertiliser becomes particularly important.
The fertiliser problem
Modern agriculture is heavily dependent on energy. Natural gas is a major input into the production of nitrogen fertilisers, while oil and shipping costs affect the movement of fertiliser around the world.
The Middle East crisis is therefore creating pressure from several directions at once. Energy supplies are being threatened, important shipping routes are being disrupted and the cost of moving goods is rising.
The Strait of Hormuz has already been severely disrupted, while the Bab el-Mandeb provides the gateway between the Red Sea and the Indian Ocean. With the Houthis now able to threaten both shipping and alternative oil routes, traders are having to price in a much greater risk of prolonged disruption.
That matters for Britain even though it is thousands of miles away.
A rise in the price of fertiliser eventually works its way into the cost of producing food. Higher diesel prices raise the cost of agricultural machinery and transport. Higher shipping costs add another layer.
The result can be a particularly awkward form of inflation.
It is not necessarily caused by British consumers spending too much. It is caused by the world becoming more expensive to supply.
Britain has already been dealing with inflation
This is happening at an unfortunate time for the UK.
The Bank of England's current Bank Rate is 3.75%, while the latest inflation rate is 2.9%, still above the Bank's 2% target. The Bank is due to make its next interest-rate decision on 17 September.
The Bank had been trying to balance two competing pressures.
On one side is an economy that would normally benefit from lower interest rates. Borrowers want cheaper mortgages and loans, businesses want lower financing costs and the Government would like economic growth to improve.
On the other side is inflation.
The problem is that an oil shock can make the Bank's job considerably harder.
If oil goes from $80 to $110 a barrel, for example, the Bank cannot produce more oil by raising interest rates. Nor can higher rates repair a damaged pipeline or reopen a shipping route.
But the Bank can influence what happens afterwards.
If higher energy and food prices become embedded in wage demands, business costs and inflation expectations, the original oil shock can become a much wider inflation problem.
That is when interest rates become relevant.
Could this mean higher interest rates?
Quite possibly.
There is already evidence that financial markets are beginning to consider the possibility. The Financial Times reported on Monday that the surge in oil prices has revived expectations of a Bank of England rate increase later this year, with markets pricing in the possibility of several increases over the following year.
That does not mean a rate rise is inevitable.
The Bank will have to distinguish between a temporary increase in prices and a persistent inflation problem.
If oil rises sharply but falls back within a few months, the Bank may decide that raising interest rates would do more harm than good. The energy shock would eventually disappear from the inflation figures.
But if the disruption continues, the calculation changes.
Suppose oil remains above $100 for months rather than weeks. Suppose fertiliser prices continue rising. Suppose food manufacturers, transport companies and other businesses pass their increased costs on to customers. Suppose workers then seek higher wages to compensate for the higher cost of living.
The Bank would then be facing a much more difficult inflation problem.
The danger is a second inflation wave
This is perhaps the most important issue. Britain has only recently been trying to escape the previous inflation shock. The danger is that the Middle East conflict creates another one before the effects of the first have completely disappeared.
The Bank of England itself has previously warned that higher energy costs can feed through into food prices, with fertiliser costs being one of the channels.
That means the oil price is worth watching, but so are fertiliser prices, food inflation, freight costs and wages.
The relationship is roughly:
Conflict → oil and shipping costs → fertiliser and transport costs → food and other prices → inflation expectations → interest-rate pressure.
There is also a further complication. Higher interest rates would come at a time when higher energy and food prices are already squeezing household incomes. That could weaken consumer spending and make life particularly difficult for households with mortgages or other debts.
In other words, the Bank could find itself fighting inflation by making the economy weaker.
What does this mean for Scotland?
Scotland would not be immune. Petrol and diesel prices would affect households and businesses, while higher transport costs would be particularly significant in rural and remote areas where there are few alternatives to road transport.
Higher fertiliser costs could also eventually affect Scottish farmers and, ultimately, food prices.
For places such as Caithness and Sutherland, where goods have to travel considerable distances, higher fuel and freight costs can have a disproportionate effect.
There is also the heating question. Although Britain's energy system is changing, oil remains important to many households, particularly in rural Scotland where mains gas is unavailable. A prolonged oil-price surge therefore has consequences beyond the petrol pump.
The $110 question
The immediate question for financial markets is whether oil can stabilise around current levels or whether the disruption pushes it substantially higher.
The more important question for households may be what happens if it stays there.
A short-lived jump to $110 is one thing. Oil remaining above $100 for several months, accompanied by higher fertiliser, shipping and food costs, would be something quite different.
That could turn what currently looks like a Middle East energy crisis into another global inflation problem.
And that is why the Houthi attacks matter far beyond the Red Sea.
The danger is not simply that filling the car becomes more expensive.
It is that a prolonged disruption could feed through the entire economy and force central banks, including the Bank of England, to keep interest rates higher for longer than they had hoped.
The uncomfortable possibility is that just as Britain begins to hope that the era of high interest rates is ending, events thousands of miles away could start pushing them in the opposite direction.