Oil prices surged above $108 a barrel on Monday after drone attacks forced Saudi Arabia to shut its east-west crude pipeline, with Houthi rebels in Yemen also seizing the strategic island of Perim in the Bab al-Mandab strait. The escalation matters because it threatens key energy and shipping routes at a time when Gulf states have postponed talks with Tehran on opening a temporary lane through the strait of Hormuz, through which a fifth of global oil and gas supply normally flows, raising fears of further disruption and higher inflation worldwide.

Brent crude rose as much as 3.25% to $108.03 a barrel, with Saudi traders warning the kingdom could run out of exportable oil stocks within days unless the pipeline reopens. UK gas prices also jumped 5% to 208.73p a therm, their highest since December 2022, while Saudi crude output was already at its lowest since 1990 in August. Analysts warned prices could approach April's peak of $126 if tensions worsen, complicating interest rate decisions this week by central banks in the US, UK and Japan.