Motorists across the United Kingdom are experiencing a sustained increase in petrol and diesel prices, a trend directly linked to the escalating conflict between the US and Iran that began on February 28. This geopolitical tension has significantly disrupted the production and transportation of energy resources throughout the Middle East, with missile strikes and drone attacks at times halting operations entirely. The RAC, a prominent UK motoring group, has issued a warning that pump prices could continue their upward trajectory if the conflict remains unresolved.
The cost of fuel at the pump is intrinsically tied to wholesale oil prices, as crude oil serves as the fundamental component for both petrol and diesel. Analysts indicate that for every $10 increase in the price of oil, pump prices typically rise by approximately 7 pence per litre. Since the onset of the conflict, the price of Brent crude, the global benchmark for wholesale oil, has exhibited considerable volatility. It surged from $73 per barrel to a peak of $126 at one point, marking the highest level seen since Russia's full-scale invasion of Ukraine. This dramatic fluctuation has translated into substantial cost increases for consumers, with the price of filling a typical family car with petrol rising by around £14, and a tank of diesel becoming approximately £27 more expensive.
In the UK, the price of unleaded petrol reached 158.5 pence per litre on May 19, its highest point since the conflict began. Diesel prices stood at 185.9 pence per litre. These figures represent a notable increase from mid-April, following a temporary dip in prices before the recent upward trend. The RAC has projected that unleaded petrol could climb to at least 160 pence per litre in the coming weeks, contingent on a significant and sustained decrease in global oil prices. While the outlook for diesel drivers appears slightly more favorable, both fuel types remain considerably cheaper than the record highs observed in the summer of 2022, when petrol hit 191.5 pence per litre and diesel reached 199 pence following Russia's invasion of Ukraine.
The lag between wholesale market movements and their reflection at the pump is typically around a fortnight, owing to the time required for oil transportation. In response to rising prices, accusations of price gouging by fuel retailers have surfaced. However, an investigation by the official markets regulator found that profit margins for these retailers remained "broadly unchanged" between February and March, suggesting no widespread exploitation. For consumers seeking to manage their fuel costs, a government-backed initiative called Fuel Finder allows drivers to compare fuel prices offered by various petrol stations across the UK.
The critical factor influencing future wholesale market prices remains the status of the Strait of Hormuz. This vital waterway normally facilitates the passage of approximately 20% of the world's oil and liquefied natural gas. However, its effective closure since the conflict began has created significant supply chain anxieties. While a ceasefire between the US/Israel and Iran, initiated on April 8, has largely held, the absence of a long-term peace agreement, particularly concerning control of the strait, has perpetuated market uncertainty. Analysis by BBC Verify revealed that only a minimal number of ships have transited the Strait since the temporary ceasefire, a stark contrast to the usual daily average of around 138 vessels.
Following the announcement of the ceasefire, oil prices initially declined but have since experienced a sharp resurgence as efforts to reopen the Strait have faltered. Compounding these supply concerns, the conflict has also inflicted damage on oil and gas facilities across the Gulf region, severely impacting refining capacity. The investment bank JP Morgan anticipates that global oil prices will likely persist above $100 per barrel for the remainder of the year, even if the current restrictions on the Strait of Hormuz are eventually eased.
The United Kingdom's energy supply is heavily dependent on imports, with a substantial portion of its oil and gas sourced from the United States and Norway. The price the UK pays for these commodities is dictated by global market rates. While the UK does extract some oil from the North Sea, the majority of this production is exported for refining elsewhere.
Regarding potential shortages, Chancellor Rachel Reeves stated in April that the UK was not facing an immediate threat of shortages in petrol, diesel, or jet fuel. Oil constitutes 35% of the UK's total energy supply, according to the Department for Energy Security and Net Zero. The UK is also compliant with its International Energy Agency (IEA) obligation to maintain at least 90 days' worth of net oil imports, currently holding more than this reserve. The IEA has proposed measures to mitigate energy and fuel consumption in light of the conflict, including promoting remote work and carpooling.
In April, the IEA noted that Europe had approximately six weeks of jet fuel reserves remaining. The International Air Transport Association (IATA) warned that increased airfares for European travelers were "inevitable" due to the elevated cost of jet fuel. Consequently, on May 2, the UK government announced a policy allowing airlines facing summer fuel shortages to cancel flights in advance without forfeiting valuable take-off and landing slots at busy airports.
The impact on domestic energy bills for millions of UK households is currently buffered in the short term. Consumers whose energy costs are governed by the price cap saw their unit costs decrease in April, a rate that will remain unchanged until the end of June. However, depending on the success of ongoing peace talks, these bills could see an increase when the next price cap adjustment takes effect in early July. Individuals on fixed energy tariffs will not experience price hikes for the duration of their contracts. Nevertheless, some energy suppliers have withdrawn cheaper fixed-rate deals from the market for new customers.
Heating oil, a crucial energy source for many households in Northern Ireland and rural areas, is more directly susceptible to fluctuations in the global oil price. The recent international uncertainty has therefore led to increased bills for households needing to refill their heating oil tanks. In response to this situation, the government has introduced a £53 million support package aimed at assisting those affected by these rising costs.
