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Oil prices have rocketed to their highest level since 2022 as reports suggest US President Donald Trump is preparing for an escalation of the Iran war with further military action.

The cost of benchmark Brent crude soared past 126 US dollars (£94) a barrel at one stage, up nearly 7%, reaching a high not seen since Russia’s invasion of Ukraine in 2022.

Brent crude later stood at just over 121 dollars a barrel.

The latest spike comes as hopes were dashed of a resolution to the war and the reopening of the crucial Strait of Hormuz shipping route because peace talks between the US and Iran are said to have broken down.

It is reported that Mr Trump has rejected Iran’s proposals to reopen the strait and is preparing to launch a series of strikes on Iran, which would bring an end to a fragile ceasefire.

It is thought Mr Trump is refusing to lift the US naval blockade of Iranian ports until he secures a nuclear deal with Tehran.

There were heavy falls overnight on Asian markets due to the speculation, with the Nikkei 225 in Japan and the Hang Seng both down by over 1%.

But London’s FTSE 100 Index bucked the wider sell-off, rising 0.5% to 10259.64 in early trading on Thursday.

Neil Wilson, Saxo UK Investor Strategist, said: “The oil market has moved from ignoring headlines and hoping for resolution to fixating squarely on the physical scarcity and long-term threat to supply with the possible escalation of conflict now looming.”

The surge in oil prices will lead to further fears over price rises at the petrol pumps, with worries the global energy shock will feed through to a sharp increase in UK inflation if the Middle East conflict rages on.

The Bank of England is set to announce its latest decision on interest rates at noon, with expectations for borrowing costs to remain on hold, but experts have said a hike could still be on the cards if the conflict continues to put pressure on UK inflation.

Susannah Streeter, chief investment strategist at the Wealth Club, said: “There had been high hopes that a ceasefire would start to see prices at the pumps retreat, but amid this standoff, it seems that the only way is up for the cost of filling up.

“It’s also set to keep freight costs highly elevated, looks set to push packaging costs higher, given plastics are made from petrochemicals, and could have a highly damaging effect on global food production.

“Urea shipments, used for fertiliser, are blocked and costs have rocketed for farmers around the world who didn’t buy stocks in advance.

“The worry is that all these costs will be passed on through supply chains, pushing up the price of everyday goods, later in the year and into next year.”