How and why oil prices affect your money and investments

Updated April 2026

For most of us, our only interactions with oil prices are on the news and at the fuel pump. On the global financial stage, however, they act like the stone thrown into a pond. The ripples that come from oil prices reach everything from your weekly food shop to pension performance.

Brent crude is considered the global benchmark for oil prices. In early 2026, its price was highly volatile. Throughout 2025, prices hovered between $60 and $70. The recent conflict in Iran and tensions on the Strait of Hormuz have pushed oil prices into overdrive.

Long-term investors need a dispassionate view in times like this. A little knowledge goes a long way to encouraging calm when the headlines get noisy.

Why oil prices change

Three main factors drive the price of oil today:

• Global demand: A basic tenet of economics. If the global economy is booming, more goods need to be made and transported. Transport runs on oil, so demand rises and prices follow. Abundance begets abundance. If electric vehicles and green energy skyrocket, demand for oil may drop. In that case, prices should fall.
• OPEC+ supply: The Organisation of Petroleum Exporting Countries is a group of oil-producing nations, representing the majority of the world’s oil production. They can influence prices by collectively limiting production rates. Currently, OPEC+ is trying to keep prices high enough to make a profit, but not so high to inhibit global economic growth.
• Global politics: This is the current flashpoint. The Iran war has threatened a major supply route: the Strait of Hormuz. 20% of the world’s oil passes through this narrow chokepoint connecting the Persian Gulf to the Gulf of Oman. At the peak of the conflict, prices spiked above $110 per barrel – close to double last year’s prices. Once diplomacy and ceasefire conversations started, prices calmed.

Why it matters for your investments

When oil prices jump, everyone feels the landing. Borrowers, savers, companies and investors are all affected in several ways:

1. Inflation

Almost everything you buy has to be moved by a lorry, ship, or plane. Expensive oil means expensive shipping, as well as increasing the cost of making goods. Businesses often pass these costs on to you and that, in its simplest form, is inflation.

2. Interest rates

The Bank of England aims to keep inflation at 2% per year. It does this primarily by changing interest rates (via the ‘base rate’). If inflation starts to drift upwards, they may choose to increase the base rate. In theory, this makes borrowing less appealing and saving more attractive. We all spend less, so demand for goods falls and inflation drops.

Oil prices are powerful, though, and can be hard to budge. As a result, the BoE may keep interest rates higher for longer to really calm spending.

3. Share prices

When markets get volatile, there are always winners and losers. For some companies, higher oil prices and interest rates can be a good thing.

The winners:

• Big names in oil and gas see soaring profits when oil prices rise.
• High interest rates benefit banks, as they can increase their margins. They earn more from borrowers, but don’t always pass the difference on to savers.

The losers:

• Costs for airlines, shipping firms, and manufacturers are directly affected by oil prices.
• Retailers can suffer as people have less “fun money” left after paying for expensive fuel, heating, and food.
• House builders and construction often face a sudden slowdown. Interest rates rises make mortgages and the cost of moving house more expensive, so real estate activity cools.

The wildcard:

• High oil prices often make solar, wind, and nuclear power look much more attractive, which can speed up investment in these technologies. Companies in renewables, clean energy, and energy efficiency often benefit from rising oil prices.

4. Bond holders

Bonds are, effectively, a loan to a company or government. You get regular repayments (with interest) in return. Bonds are attractive for their fixed payments, predictability, and lower risk than stocks and shares. Despite this, bonds can still go up or down in value, driven by higher inflation and/or interest rates.

If interest rates are high, then a fixed payment of £5 in a year’s time will be worth less than £5 that you save (or invest) today. Inflation has a similar effect. £5 may buy 3 loaves of bread today, but only 2 loaves next year. The value of the same £5 decreases over time. The opposite is also true: as interest rates or inflation falls, the value of bonds usually goes up.

Bonds are generally less risky than shares because companies have to pay back debt before they can pay out profits to the company’s shareholders.

The big picture for investors

Investing is a great experience when things are going well. Watching your portfolio grow, you feel like you’ve made a great decision. When the world decides to throw a spanner in the works, it can test your mettle. Time and again, we’ve seen that the best defense against market turbulence is a diversified portfolio.

When your money is spread across different industries, countries, and types of asset (as in our Growth funds), you’re not over-reliant on any single sector. Some of your investments may go down, but others may go up. Diversification aims to smooth out the peaks and troughs of investing.

So, while soaring oil prices might show up at the petrol station, your investment portfolio should have taken the sting out of it. Over time, the headlines will provoke less and less worry. History shows that markets eventually digest these shocks – staying the course is usually the smartest move.