Oil prices extended their gains on Monday as the Middle East conflict escalated over the weekend, pushing Brent crude back above $105 a barrel and reviving the energy-driven inflation threat that central banks thought they were finally leaving behind.

Brent crude futures rose 0.73% to $105.48 a barrel in early Monday trading, while U.S. benchmark West Texas Intermediate climbed 0.64% to $92.44, according to Reuters. The move capped a violent weekend: Yemen’s Iran-backed Houthis stepped up strikes on Saudi Arabia, and two tankers were attacked in or near the Strait of Hormuz — the chokepoint through which roughly a fifth of the world’s oil normally flows.

What happened this weekend

The Houthis claimed responsibility for a Saturday strike on Riyadh’s international airport that killed 13 people and wounded more than 300, with Saudi authorities reporting further injuries from a new attack on the airport on Sunday. The strikes followed an attack late Wednesday on an oil and chemical tanker near Qatar and Houthi strikes on Riyadh on Thursday that, according to a Saudi statement on Friday, killed three people, including a pilot for the national carrier Saudia.

On the water, the United Kingdom Maritime Trade Operations reported that a tanker was struck by a drone near the Sohar anchorage in Oman, while another was damaged by an unknown projectile while transiting the Strait of Hormuz itself. CNN reported that more than a dozen strikes on shipping have occurred since the end of September, slowing oil flows through the waterway and keeping crude above $100 a barrel.

The politics are moving as fast as the prices. U.S. President Donald Trump said on Saturday that Washington was considering joining Saudi strikes on the Houthis — a spillover from the wider war with Iran that the U.S. and Israel launched in February. At the same time, Trump said on Thursday that he did not plan to strike Iran before the November 3 U.S. midterm elections, and on Sunday he unexpectedly announced that Ukraine and Russia had agreed to an “energy ceasefire,” following a diesel supply deal with Russia announced on Friday. Tehran, for its part, has called control of Hormuz a “strategic red line,” according to the Wall Street Journal, and is expanding its target set in the Gulf.

The numbers: oil’s six-week climb

A Macrometer tally of dated Brent closes shows how steadily the market has repriced supply risk since late August:

That is a 19.7% rally in about six weeks, computed from dated closes reported by Reuters, EconoTimes and FXStreet. Goldman Sachs analysts led by Daan Struyven now estimate the market carries a risk premium of “just over $20 a barrel” — and even the bank’s newly raised December Brent forecast of $90 (up from $85) sits well below current spot prices. Goldman expects WTI, unusually cheap versus Brent because of high U.S.-Europe shipping costs, to average $81 this December and $73 in 2027.

The pressure is not only in crude. Diesel prices have risen sharply in both Europe and the United States as Middle Eastern and Russian exports tightened, and a separate disruption hit closer to home: Hurricane Isaias made landfall on Saturday, forcing Shell, Chevron and BP to redeploy personnel and restore production at Gulf of Mexico platforms.

Two ways this plays out

The case for higher prices. Tehran is deliberately using Hormuz as leverage — expanding attacks to break what analysts describe as a stalemate and to pressure Washington toward a diplomatic settlement before the midterms. Each new tanker strike reinforces the risk premium, and with diesel markets already tight, refiners have little cushion. If the Houthi front against Saudi Arabia widens, or if talks collapse, Goldman warns of “significant net upside risk” beyond the current $20 premium.

The case for a fade. Goldman’s base case is that Middle East supply keeps adapting and crude eventually falls — note the bank’s $90 December Brent call is a forecast of decline from here, not of further gains. Trump has taken direct strikes on Iran off the table until after November 3, Qatar continues shuttle diplomacy, and late September showed that even amid the conflict, more than 20 million barrels transited Hormuz over a single weekend — the strongest flow since the fighting began. The Ukraine-Russia energy ceasefire and the diesel supply deal also point the other way for fuel markets.

What it means for inflation and central banks

This is the worst possible timing for policymakers. Just as central banks were pivoting back toward fighting inflation, energy is threatening to do their work for them — in the wrong direction.

The U.S. Federal Reserve raised rates in September to a 3.75%–4.00% range, and Governor Christopher Waller said on October 8 that further increases would likely be needed to return inflation to the 2% target. September U.S. consumer prices came in at 3% — covered in our September CPI breakdown — and the 10-year Treasury yield touched a multi-decade high of 5.3% earlier this month. In Europe, September inflation hit 3.8%, nearly double the ECB’s target, and a Reuters poll of economists last week found almost 90% now expect another ECB rate hike in December — a sharp reversal from a month ago, when the consensus was that Frankfurt was done. France’s bond market, meanwhile, is already pricing fiscal stress, as we detailed in our look at the OAT-Bund spread blowout.

A sustained $100-plus oil price feeds directly into headline inflation through fuel and transport costs, and risks the “second-round” spillover into other consumer prices that would force central banks to tighten further — the trigger ECB officials have explicitly named. For a fuller picture of how rate expectations have swung this month, see our analysis of the Fed’s shifting October odds.

What to watch next

Three things will decide whether this is a spike or a regime change: the volume of oil actually moving through Hormuz this week, whether the Houthi-Saudi front escalates further or draws the U.S. in directly, and whether the diplomatic track — Qatar’s shuttle diplomacy and the proposed Hormuz reopening framework — produces anything concrete. Fuel markets, especially diesel in Europe, deserve separate attention: that is where physical tightness is already biting.

Energy shocks have a habit of arriving just as inflation looks contained. Central banks spent the autumn rebuilding their hawkish credentials; oil at $105 will test whether that resolve — and the recovery in bond markets — can hold.

This article is analysis, not financial advice.