The number is 105 dollars
One hundred and five dollars. Fifty one cents. That is the number that flashed across trading terminals on Thursday afternoon. It is the price for a single barrel of Brent crude oil. Brent crude is the benchmark extracted from the North Sea, but its reach is global, setting the price for two thirds of the world’s traded oil supplies. The market’s reaction was immediate. And it was brutal. In London, shares tumbled as investors calculated what that single figure means for everything else. The fear is inflation.
That word can feel abstract. It is used often by economists. Today this is what it means. A price of 105 dollars for oil guarantees that the cost of almost everything will soon rise, a simple piece of arithmetic that traders acted on instantly. It is not just about the price of filling up your car, though that will certainly go up. This number matters far more than that. It means the diesel in the lorry delivering food to Tesco will be more expensive, a cost the haulier will pass on to the supermarket, which will pass it on to you.
The cost will not stop there. The plastic packaging on that food, itself a petroleum product, will cost more to manufacture. The fertiliser used to grow the vegetables, which is incredibly energy intensive to produce, becomes more expensive. The electricity required to power the factory making your biscuits and the gas needed to heat the warehouse storing them will track the oil price upwards. These are not theoretical possibilities. They are economic certainties. Investors are not panicking about a word. They are selling shares because they know higher energy costs squeeze company profits and erode household spending power, leaving less money for everyone, everywhere. This number, 105 dollars, is not a problem for the City. It is a problem for your wallet.
From the North Sea to your shopping basket
It starts with transport. The link is direct. Almost everything you buy is moved at some point by a lorry, a ship, a train or a van. All of them run on fuel derived from crude oil. The diesel fuelling the Eddie Stobart truck that brings fresh milk to your local Sainsbury’s is refined directly from crude, so when the barrel price jumps, the cost to fill that truck’s tank rises by a predictable, painful amount. A haulier cannot absorb that cost. So it is passed on. The extra expense is added to the delivery invoice sent to the supermarket’s head office in Holborn. The supermarket, protecting its own profit margins from thousands of such new charges, then raises the price on the shelf. You pay the difference. The journey from a 105 dollar barrel to a more expensive pint of milk is that fast. It is that simple.
This is not just about fuel. Oil is a physical ingredient. Look around your house. The pipes under your sink, the paint on your walls, the fleece you wear and the bins in your kitchen are all made from petroleum. So is almost all packaging. The black plastic tray holding your microwave lasagne, the clear film sealing it, and even some of the synthetic stabilisers within it are derived from oil. A higher oil price means a higher cost for the raw materials used by the factories in Rotherham or Runcorn that produce these items. Those factories also need huge amounts of energy to run their machinery and light their buildings. Much of that energy comes from natural gas, whose price often moves with oil, or from electricity generated in gas fired power stations. The entire cost base of British manufacturing just went up.
Farms run on oil. This fact is often forgotten. Modern agriculture is simply the process of converting fossil fuels into food, from the diesel in the John Deere tractor ploughing a field in Lincolnshire to the natural gas superheated to create the nitrogen fertiliser that makes the wheat grow tall. That fertiliser, made using an energy intensive process, is one of a farmer’s biggest costs. Its price is directly linked to global energy prices. Higher oil makes it more expensive to sow the crop, to spray the crop and to harvest the crop. Then it costs more to transport the grain to the mill. It costs more again to power the ovens at the bakery. Each step adds another layer of cost. Every layer is caused by that single price. The price of a barrel of oil.
The Bank of England's impossible choice
The problem now lands on a desk in Threadneedle Street. Nine people sit around a table there. They are the Monetary Policy Committee of the Bank of England. Their job, set for them by the government, is to keep inflation at 2 per cent. A price of 105 dollars for a barrel of oil makes that simple job almost impossible. The Bank has one primary tool to control inflation. Interest rates. It is a powerful tool. It is also a very blunt instrument, one ill suited for the current crisis.
When the Bank of England raises its base rate, the cost of borrowing money increases for absolutely everyone across the United Kingdom, from a couple applying for their first mortgage in Manchester to a multinational corporation financing a new factory in Sunderland. The idea is to cool down an overheating economy where too much money is chasing too few goods, making people and businesses save rather than spend. But this is not an overheating economy. The surge in the oil price is not a sign of rampant British demand. It is an external shock. A supply problem. It acts exactly like a colossal tax increase imposed on the entire country from abroad. Using higher interest rates to fight it is a brutal strategy. It means deliberately squeezing household incomes and company profits that are already being squeezed by the higher energy costs. It risks choking off what little economic growth we have. It is a choice to inflict more pain now in the hope of avoiding greater pain later.
So why would the committee ever consider it? They fear something worse. They fear a ghost from the 1970s. That ghost is the wage price spiral. The Bank's biggest worry is that if people see prices rising rapidly, they will begin to expect prices to rise rapidly forever, and they will change their behaviour accordingly. Workers will demand large pay rises to protect their living standards. Unions will push for higher settlements. Businesses, expecting their own costs to keep climbing and seeing that customers are prepared for higher prices, will raise their own prices to protect their profit margins. Inflation stops being a temporary shock. It becomes embedded. It becomes a permanent feature of the economy. This is what 'unanchored inflation expectations' means. It is a central banker's nightmare.
This is the trap. It has a name. Stagflation. The word describes the toxic combination of a stagnant or shrinking economy with high and persistent inflation. The Bank of England must now choose a path. One path involves raising rates aggressively to crush inflation, knowing this will almost certainly trigger a recession, costing people their jobs and their businesses. The other path involves holding rates lower to protect the economy from recession, knowing this risks allowing high inflation to become entrenched for many years. There is no good option. There is no painless solution. Every decision the nine economists on the Monetary Policy Committee make from this point on will cause misery for someone.
There are winners and losers
A price of 105 dollars a barrel is not a universal disaster. It is a transfer of wealth. A massive one. For every business and every household facing higher bills, there is a company or a country on the other side of the transaction, booking a colossal profit. The surge in the cost of Brent crude creates a clear and brutal divergence. There are big winners. There are bigger losers.
The winners are obvious. They are the producers. For energy giants like Shell and BP, a higher oil price is pure good news, transforming their financial forecasts and sending their share prices climbing even as the wider market falls. Once the fixed cost of pulling a barrel of oil from the North Sea or the Gulf of Mexico is covered, almost every additional dollar from a price hike drops straight to the bottom line. This means fatter profits. It means bigger dividends for pension funds and other investors who own their shares. It also means a tax windfall for the UK Treasury. The same logic applies on a national scale. For countries whose entire economic model is built on oil exports, like Saudi Arabia, this is a moment of celebration. Budgets in Riyadh are built around an assumed oil price, and a sustained period above 100 dollars a barrel unleashes a torrent of cash for the kingdom.
The list of losers is much longer. It starts with the industries for which fuel is a lifeblood. Airlines are hit first and hardest. For a company like International Airlines Group, the parent of British Airways, jet fuel is a huge and volatile operating expense that can account for a quarter of its entire cost base. A sudden price spike, if not hedged against, is financially ruinous. The airline faces an impossible choice. It can absorb the higher cost, which craters its profitability and angers shareholders. Or it can pass the cost on to customers through higher ticket prices and fuel surcharges, which risks driving passengers away. Neither option is good.
The pain spreads quickly. It leaves the tarmac. It hits the motorway. Road haulage firms, the arteries of the British economy, run on diesel. Their margins are notoriously thin. A jump in the price at the pump cannot always be passed on immediately to clients, meaning many small operators will simply go out of business. Then there are the manufacturers. For them, oil is a double blow. It is the energy that powers their factories, but it is also a physical ingredient, the primary feedstock for the production of plastics, chemicals and fertilisers. Their costs soar. This is not just a line on a spreadsheet in the City. It is a direct threat to the viability of businesses in Sunderland, in Sheffield, in Swansea.
Ultimately, there is only one final loser. The household. Everyone else along the chain, from the Saudi oil minister to the BA chief executive to the factory owner, will try to protect their own position by passing the increased cost along. The buck stops with the consumer. It stops with you. You pay for it at the petrol station. You pay for it through your energy bills. You pay for it in more expensive flights for your summer holiday. You pay for it in the slow, creeping increase in the price of almost everything you buy, from a plastic bottle of water to the food on your plate, because crude oil is embedded in the cost of making and transporting it all. The gains for Shell are paid for, in the end, by you.
What to watch for now
What happens now? Watch the numbers. The first place to look is the Office for National Statistics. Its next update to the Consumer Prices Index will be the official verdict on how the journey of a barrel of Brent crude ends with a higher bill at a supermarket in Britain. That single figure will land on desks in Threadneedle Street and in Number 11 Downing Street, setting the agenda for weeks. It is a critical data point. A high reading confirms fears. It means the price shock is no longer contained. A low reading is unthinkable.
The second place to watch is Threadneedle Street. This is the Bank of England. Its Monetary Policy Committee will take that inflation number and face an impossible decision. The MPC has nine members. Their primary weapon against rising prices is to raise interest rates, a move designed to make borrowing more expensive and cool the entire economy down. This is a brutal tool. It would mean higher mortgage payments for millions of families and increased loan costs for businesses just as they are grappling with soaring energy bills. The risk is recession. The alternative, doing nothing, is to let inflation run wild, destroying savings and wages over the long term. No good options exist.
Finally, watch the government. The Chancellor is next. He controls the public finances. While the Bank of England acts with the blunt instrument of interest rates, the Chancellor can be more targeted, using tax policy or direct support for households struggling with bills. He will be under immense pressure to act. The calls will come from everywhere. But this help costs money. Billions of pounds. Unfunded spending promises risk pouring petrol on the inflationary fire, creating a direct conflict with the Bank’s strategy and alarming the financial markets that the UK depends upon for borrowing. He is trapped. A coordinated plan with the Bank of England is now essential. Cohesion is vital.
Sources. Independent Business: Shares fall as oil surge fuels inflation fears. Evening Standard: Shares fall as oil surge fuels inflation fears.
Analysis. Drafted with AI assistance from the sources listed above and reviewed by an editor before publication. Jnews links to the organisations it writes about.
