The UK gas price surged by more than 46%, following sharp gains last Monday pushing it to its highest level for three years. Brent crude oil briefly rose above $85 a barrel. In the US, the Dow Jones Industrial Index plunged by more than 2% in morning trade. The S&P 500 and the Nasdaq saw similar declines, following sharp falls in Europe. Since Israel and the US launched strikes on Iran and Tehran retaliated, investors have been weighing the potential economic impact, including what it could mean for inflation and interest rates.

There are fears the fight in a region that plays a key role in global energy supplies and shipping routes could have a similar impact to Russia's full-scale invasion of Ukraine four years ago which pushed up the cost of energy, causing price rises for businesses and consumers around the world. In its latest fiscal outlook document, the UK's Office for Budget Responsibility said the escalation of the conflict could upset its forecasts, warning it could have "very significant impacts on the global and UK economies". Market reaction, especially in the US, had been relatively muted last Monday - a bet that the conflict would prove short-lived.

But investors are now "reassessing the situation", as shipping traffic in the region comes to a standstill and the White House's timeline for the war remains uncertain, said Philip Palumbo, founder of Palumbo Wealth Management. "As long as this war continues - which, it can continue longer than people think - it can be an issue for the price of oil... which can be impactful to an overall economy," he told the BBC. "That's why you're seeing the markets de-risk at this moment." A prolonged rise in energy costs could scramble bets on the direction of interest rates, and weigh on the artificial intelligence (AI) industry, which has huge energy demands and had helped drive stock market gains, Thierry Wizman of Macquarie Group warned in a note.

"That the current war may be 'inflationary' is what's panicking traders today," he said. UK gas prices rose above 165p a therm on Tuesday, which it last traded at a year after the start of the Ukraine war. It fell back to 146p a therm by early afternoon. The boost to the gas price came after QatarEnergy, one of the world's biggest exporters, halted production following "military attacks" on its facilities. It subsequently announced that it would stop producing other materials including aluminum, methanol and urea used for fertiliser. UK gas prices have now doubled since the US and Israel began a wave of air strikes on Iran last Saturday. (BBC/ Getty Images)