Iran Peace Talks Collapse|Brent at 107 and Climbing

Oil at $107 — and Rising

The ceasefire is technically still holding. And yet oil just hit $107 a barrel — its highest in three weeks — after Trump cancelled envoy talks to Pakistan over the weekend. That is the contradiction sitting at the centre of global markets this Monday morning.

Brent crude has now risen more than 20 percent since April 17, when peace negotiations first stalled. Goldman Sachs, in a note published Sunday, raised its Brent forecast to $90 for the fourth quarter — up from a prior $80 projection. But that forecast already looks conservative, given Monday's $107 print. The bank warned of "unprecedented" supply shock and "long-term scarring" of Gulf production capacity of around 500,000 barrels per day. The Strait of Hormuz, which once carried a fifth of the world's oil, still sits at roughly 15 percent of its pre-war traffic.

Iran did send a proposal through Pakistani mediators — offering to reopen the Strait without first resolving the nuclear question. Trump called it a "much better" offer after cancelling the Pakistan trip, yet no new talks are scheduled. That ambiguity is exactly what oil traders are pricing. The longer the Hormuz chokehold persists, the harder it becomes to model when supply returns. Goldman noted that Gulf exports are now not expected to normalise until end of June — a six-week extension from their prior forecast. BlackRock's Larry Fink has warned oil could reach $150 if the war drags deeper, a level associated in previous cycles with recession risk.

The FTSE 100 opened flat, with energy stocks offsetting consumer sector losses. Shell(RDSB) rose on the back of its $16.4 billion acquisition of Canadian shale producer ARC Resources — a deal that adds 370,000 barrels per day of production and signals a decisive reversal of the post-2020 pivot toward renewables. Shell's shares are already 16 percent higher since February, before the war began. The deal is its largest in over a decade and bets heavily on a world where hydrocarbons remain structurally scarce.

BoE Under Pressure

The same oil shock now forcing Shell into Canadian shale is pulling the Bank of England in a direction it had spent two years trying to avoid — back toward rate hikes.

Economists at JP Morgan, Goldman Sachs, and BNP Paribas all flagged ahead of this week's Monetary Policy Committee meeting that at least two members are likely to vote for a rate increase. Chief Economist Huw Pill is expected to lead the hawkish bloc, with external member Megan Greene potentially joining. Pill has voted to raise rates 14 times in 37 MPC meetings. His core argument is that energy shocks anchor inflation expectations in a way that persists long after the supply disruption ends — a lesson he drew from the post-Ukraine period when UK inflation peaked at 11 percent.

The government's own timeline makes this more acute. Chief Secretary Darren Jones told the BBC on Sunday that even after the Strait of Hormuz reopens and fighting stops, prices for energy, food, and flights will remain elevated for at least eight more months. That guidance — eight months of pass-through inflation after de-escalation — gives the Bank of England virtually no near-term path to cuts. Deutsche Bank described the current MPC divisions as "historically high," with its base case still a hold but with non-trivial probability of a surprise hike.

The consumer squeeze is already visible. UK households have paid roughly £3,400 more in energy bills over the past five years as a result of war-driven supply shocks, first Ukraine and now Iran. Mortgage borrowers face a direct hit if rates rise: with a large share of UK fixed-rate deals expiring this year, any upward movement in the base rate would translate almost immediately into higher monthly payments.

The weight of evidence points toward a hold this week — seven votes to two in most forecasts — but the direction of travel is shifting. If Pill and Greene do vote to hike, the forward guidance language will matter as much as the vote count. A shift from "gradual easing" to a neutral bias would be read by markets as a warning that the next move could be up, not down. Watch Thursday's decision statement for any change in that framing.

Aviation in Freefall

There is one sector where the oil shock has already stopped being a forecast and started being an operating crisis: aviation.

Jet fuel costs have risen from roughly $85 to $90 per barrel before the war to somewhere between $150 and $200 per barrel today. For carriers where fuel constitutes up to a quarter of operating costs, that is not a rounding error — it is an existential pressure on route economics. United Airlines is considering fare increases of up to 20 percent. Lufthansa has cancelled 20,000 flights. KLM cut 160 European routes in April alone. Air France-KLM has announced cabin fare surcharges of €50 per round trip.

Ryanair's decision to shut its Berlin operating base, reducing the city's passenger numbers from 4.5 million to 2.2 million annually, adds a structural layer to what others are treating as a temporary disruption. The carrier blamed German aviation taxes — but the timing makes clear that jet fuel economics are accelerating decisions that might otherwise have been deferred. Ryanair's Berlin exit predates any formal shortage; it is a forward pricing decision, not a supply failure response.

The Strait of Hormuz recovery remains ambiguous. On Saturday, 19 vessels crossed — a "sharp rebound" by maritime intelligence firm Windward's measure, versus just three per day at the worst point. But analysts at the Centre for Research on Energy and Clean Air noted that vessel crossings have not yet translated into increased oil and gas flows. The passage of ships does not mean cargo is moving at scale, and roughly 75 percent of Europe's jet fuel originates from the Middle East.

The key variable in the coming weeks is not whether peace talks restart — it is whether the partial reopening of Hormuz translates into measurable jet fuel supply reaching European refineries. If flows do recover materially before end of May, carriers may pull back from the deepest cuts. If June arrives with the strait still operating at a fraction of capacity, fare increases will accelerate and summer travel plans across Britain face real disruption. The government has already flagged carbon dioxide supply as a parallel risk — a shortage that would hit food production and hospitality simultaneously. That is the scenario the Ministry of Economy is now stress-testing: an eight-month price tail, a summer of flight cancellations, and a central bank that cannot cut.