Oil and fuel markets are tightening sharply as the Iran war continues, raising the risk that diesel and natural-gas costs will push inflation higher through the winter. Brent crude futures rose above $100 this week, while the main crude benchmark reached $120 for the first time since June. Diesel futures have exceeded $200 a barrel in some markets, with taxes lifting some consumer prices above $300, and US diesel prices are at a record. Europe’s natural-gas prices reached their highest level since late 2022, while inventories are at a record low for this point in the year. The European Central Bank identified higher oil and gas prices as a risk to its inflation outlook. ECB President Christine Lagarde said refining margins, also known as crack spreads (refiner profits from turning crude into fuels), had become an important bottleneck, while Bank of England Governor Andrew Bailey said they were adding to price pressures. Markets expect two UK interest-rate increases by February. Supply is being constrained by Ukrainian attacks on Russian refineries, damage to Middle Eastern processing plants, reduced flows through the Strait of Hormuz and Saudi Arabia’s closure of its East-West pipeline after attacks by Yemen’s Houthi militants. Strategic-reserve releases are slowing, China is buying more oil and stockpiles are falling. The cost of hiring a supertanker for a day could exceed $1 million, while traders are paying large premiums for immediate supply. The International Energy Agency said 2026 would bring the largest decline in oil demand since the pandemic, as high diesel prices reduce consumption and depleted stockpiles leave the refining system stretched. Without progress in the Iran or Russia-Ukraine wars, markets could tighten further, increasing pressure on governments to protect consumers even as central banks raise rates.