Finance
Sterling Dips as US-Iran Peace Talks Stall; Energy Prices Surge
Published by Global Banking & Finance Review®
Posted on April 13, 2026
3 min readLast updated: April 13, 2026
Add as preferred source on GoogleQuick Summary
Sterling slipped as U.S.–Iran peace talks faltered and a U.S. naval blockade of Iranian ports via the Strait of Hormuz ramped energy price fears; Brent crude surged over 7–8%, boosting inflation pressures and complicating Bank of England policy outlook.
Sterling Drops Amid US-Iran Tensions and Rising Energy Prices
By Samuel Indyk
Market Reactions to Geopolitical Tensions and Energy Price Surge
US-Iran Standoff and Its Immediate Effects
LONDON, April 13 (Reuters) - The British pound fell against a broadly stronger dollar on Monday after talks between Iran and the U.S. broke down and the U.S. Navy said it would blockade the Strait of Hormuz, sending energy prices surging.
US Blockade of the Strait of Hormuz
President Donald Trump said on Sunday the U.S. Navy would start blockading the Strait of Hormuz after the two sides failed to reach a deal to end the war, jeopardising a fragile two-week ceasefire. U.S. Central Command said forces would begin implementing the blockade of all maritime traffic entering and exiting Iranian ports from 10 a.m. ET (1400 GMT) on Monday.
Impact on Sterling and Broader Currency Markets
Sterling has tended to suffer against the dollar when tensions between Washington and Tehran flare, given Britain's dependence on energy imports and the economy's sensitivity to higher fuel costs.
Expert Commentary on Currency Outlook
"Even if we get a resolution to the war ... we're still likely to see lingering higher energy prices," said Tommy von Brömsen, FX strategist at Handelsbanken.
"I think the pound and the euro are not in a very good seat right now."
The pound was last down 0.2% at $1.3429 after rising more than 2% last week, its biggest weekly gain since March 2025. Against the euro, sterling was little changed at 87.02 pence.
Bank of England Impact and Inflation Concerns
Energy Prices and Monetary Policy Expectations
BANK OF ENGLAND IMPACT
The war in the Middle East has sent energy prices sharply higher, stoking inflation concerns and adding to worries about global growth. Brent crude futures were up around 8% on Monday, trading above $102.50 per barrel.
Higher energy prices have pushed money market traders to price in interest rate hikes from the Bank of England, although most brokerages nL4N40L0ZW do not expect the central bank to raise borrowing costs in 2026.
BoE Officials and Market Projections
BoE Governor Andrew Bailey nL1N40K0PI said earlier this month markets were getting ahead of themselves by betting on rate rises.
Money market futures imply almost two quarter-point rate increases in 2026. Before the war began, investors had expected the BoE to cut rates twice this year.
"The deterioration due to rising energy prices that you've seen in inflationary conditions, or short-term expected inflationary conditions, by the end of the year looks materially worse than it was," said Moyeen Islam, senior sterling rates strategist at Barclays.
"I find it hard to think back that we can row back to pricing in cuts for 2026."
(Reporting by Samuel Indyk. Editing by Mark Potter)
Key Takeaways
- •U.S.–Iran ceasefire negotiations collapsed, prompting a U.S. naval blockade on vessels to and from Iranian ports via the Strait of Hormuz, though transit between non‑Iranian ports remains allowed (apnews.com).
- •Brent crude soared more than 7–8%, trading around $102–$104 per barrel, marking a significant spike in energy costs (apnews.com).
- •The pound weakened about 0.2% to $1.3429 after last week’s 2% rally, as markets price in lasting higher energy prices even if conflict eases, intensifying inflation and Bank of England rate expectations (apnews.com).
References
Frequently Asked Questions about Sterling dips as US-Iran peace talks stall; energy prices surge
1Why did Sterling fall against the dollar?
Sterling fell due to stalled US-Iran peace talks and rising energy prices, increasing economic uncertainty in the UK.
2How are energy prices affected by the US-Iran conflict?
Energy prices surged as the US Navy blockaded the Strait of Hormuz, restricting oil flows and boosting market volatility.
3Will the Bank of England raise interest rates?
Most brokerages do not expect the Bank of England to raise rates in 2026, despite money markets pricing in potential hikes.
4How does higher energy cost impact the UK economy?
Britain's dependence on energy imports makes its economy sensitive to rising fuel costs, increasing inflation concerns.
5What is the impact of Middle East tensions on global markets?
Tensions drive up energy prices, contributing to global inflation worries and impacting currency valuations worldwide.