Oil surged to $105 a barrel on Thursday as the Iran war showed no sign of abating, pushing global borrowing costs to levels not seen for decades.

Oil Prices Surge Amid Iran Conflict

The jump represents roughly a 12% rise from the $94 a barrel level recorded a week earlier, according to the BBC. Traders on the New York Mercantile Exchange said the spike was driven by renewed attacks on oil tankers in the Strait of Hormuz and fresh sanctions on Iranian crude exports.

Gas markets reacted in tandem, with spot prices for Asian liquefied natural gas climbing by more than 8% in the same period, the BBC reported. Higher energy costs are already feeding inflation pressures in Europe and Asia, where many economies are still wrestling with post‑pandemic recovery.

oil trading floor price board

Borrowing Costs Hit Historic Peaks

Alongside the energy shock, borrowing costs have surged to historic highs. The BBC noted that UK government bond yields have risen sharply, reflecting investors’ demand for higher returns amid heightened geopolitical risk.

In a televised address, Chancellor John Healey acknowledged the “historic high” of borrowing costs but urged businesses and households to maintain confidence. He said the government’s upcoming budget will focus on spreading growth more widely across the country.

"We must have confidence about Britain," Healey told the nation.

Financial analysts warned that elevated yields could tighten credit conditions, making loans more expensive for both corporations and consumers. The International Monetary Fund has flagged that a prolonged energy price rally could push global debt‑to‑GDP ratios higher, especially in emerging markets that rely heavily on imported oil.

UK Fiscal Response and Outlook

Healey’s budget, slated for next month, is expected to include measures to shield vulnerable households from rising fuel bills, while still addressing the fiscal gap widened by higher debt service costs.

Economists caution that if the Iran conflict extends beyond the short term, oil could breach $110 a barrel, further stoking inflation and prompting central banks to consider additional rate hikes. In the meantime, the UK’s credit rating agencies are monitoring the situation closely, with some warning that a sustained surge in borrowing costs could downgrade the country’s sovereign rating.

For now, markets remain on edge, balancing the immediate shock against the longer‑term risk of a protracted supply disruption in the Middle East.