Motorists in the UK are facing higher fuel costs as the US-Israel war with Iran continues.
Wholesale oil and gas prices have surged since the conflict began on 28 February, with the production and transportation of energy across the Middle East slowing or stopping entirely due to missile strikes and drone attacks.
Higher energy prices may lead to a rise in the cost of other goods – but it often shows up first at the fuel pump.
How quickly will oil prices affect petrol and diesel?
Crude oil is a key ingredient in petrol and diesel, meaning higher wholesale costs make filling up a car more expensive.
Since the war began, Brent crude – which is the global benchmark for oil prices – has risen by 45%, from $73 a barrel to $106 as of Monday, 9 March.
According to analysts, every $10 increase in the oil price pushes up pump prices by roughly 7p a litre.
The most recent data from the RAC motoring organisation shows that since the war began, average petrol prices have risen by 4.68p to 137.51p a litre.
Diesel has increased by 8.59p to 150.97p.
They are likely to go higher.
There is normally a time lag, with movements in oil markets taking about a fortnight to feed in to fuel prices.
“Unleaded is almost certainly going to reach an average of 140p in the next week or so,” said Simon Williams, head of policy at the RAC. “While diesel looks highly likely to climb to at least 160p a litre.”
If oil stays at around $100, the RAC predicts that petrol could rise towards 150p a litre while diesel could reach almost 180p.
Where does the UK get its oil and gas from?
The UK is heavily reliant on oil and gas imports, with the lion’s share of those imports coming from the US and Norway.
The price of oil on the global market determines how much the UK pays for it.
Though the UK does get oil from the North Sea, most of that is exported for refining elswhere.
What impact could it have on food prices?
If higher oil prices persist they could have a knock-on effect on the cost of other goods, including food.
More expensive petrol and diesel increases the transport costs for businesses moving products around the country, which can get passed on by shops and supermarkets to the consumer.
“Some elements of crude oil are used in fertiliser, and so there could be a cost implication in terms of food prices,” Benjamin Godwin, partner at investment advisory firm PRISM Strategic Intelligence, told the BBC.
However, if the conflict is short-lived then it is unlikely to result in an immediate increase in food prices, he said.
Will my energy bills rise?
In the short term, millions of UK householders’ domestic gas and electricity bills are shielded from any impact on wholesale costs paid by suppliers.
People whose energy bills are governed by the price cap already know what their unit prices are now, and will be for the three months from April. That price has already been set.
However, depending on how long the conflict lasts, there could be an impact on prices when the next price cap is set, for the three months from July.
Anyone who has fixed their energy tariff already will not see a price rise, but suppliers have started reconsidering what they are willing to offer for those fixed-price deals, and have been pulling cheaper deals off the market.
Heating oil is used by many households in Northern Ireland, and in some rural areas. The prices do fluctuate more directly in response to the oil price, so the latest global uncertainty has pushed up costs for those households refilling their tanks.
Will this affect UK inflation and interest rates?
UK inflation, which measures the pace of price rises, has eased relative to the heights reached immediately after Russia launched its full-scale invasion of Ukraine four years ago, and was expected to keep falling this year.
Interest rates, which are used by the Bank of England to keep inflation close to its 2% target, were expected to continue on a steady downward trend this year as a result.
But if higher energy costs do push up prices more broadly, inflation may not fall, or not as fast as was hoped. That throws any interest rate cuts into question, at least for the time being.
As a result mortgage lenders, who base the rates they offer on what they expect the Bank of England to do with interest rates, have started to increase their own lending rates. Anyone remortgaging or taking out their first mortgage is likely to face slightly higher rates than they would have before this week’s events.
Much depends on how long crude prices remain elevated, and whether there is a “cascade” into other prices such as food, agriculture and other products, according to Subitha Subramaniam, chief economist and head of investment strategy at Sarasin & Partners.
But there is unlikely to be much influence on prices before the Bank of England’s next rate-setting committee meeting.
“I would say the prudent course for the Bank of England would be to remain on hold,” said Subramaniam.
BBC
