Middle East conflict has driven up oil prices, leading to sharp increases in petrol and diesel costs. But diesel is rising faster than petrol – here’s the reason.
Two weeks can be an eternity in geopolitics and the past fortnight’s events have sent shockwaves through the global economy. US and Israeli strikes on Iran kicked off on February 28, causing oil prices to skyrocket overnight just as UK motorists were beginning to enjoy stable and reasonably priced petrol and diesel.
This resulted in immediate price hikes at the pumps. While all drivers are feeling the pinch, those behind the wheel of diesel vehicles may be puzzled as to why their fuel costs have surged more rapidly than petrol.
On Wednesday, the RAC reported that diesel prices had jumped nearly 9% since February 28. Petrol prices, on the other hand, were up by an average of 6%.
This equates to an additional 7p per litre for petrol, while diesel has seen an average increase of 16p per litre during the same period.
RAC head of policy Simon Williams said on Thursday: “Drivers tell us the cost of motoring is a major concern and fuel is a huge contributor to that, so making sure they’re paying a fair price at the pumps is essential. For that reason, we welcome the competition watchdog’s scrutiny of what’s happening on forecourts across the country.
“RAC fuel watch data shows average prices have rocketed in under two weeks, with the average price of petrol increasing by 7p to 140p a litre and diesel by 16p to 158p. This has added £4 and £8 to the cost of filling up a family car.”
With oil prices hovering around $100 per barrel on Friday morning, any relief for motorists in the UK and globally appears to depend on calming tensions in the latest conflict. There’s also growing pressure on Chancellor Rachel Reeves to postpone her plans to gradually remove a 5p reduction to the duty, beginning with a 1p rise from September this year.
Edmund King, president of the AA, said: “As the conflict in the Middle East continues, the global increase in oil prices will hurt inflation, particularly with the diesel price hikes. As most goods and services are delivered by diesel vehicles, this will lead to price rises which the consumer will be stung with. We strongly encourage the Chancellor to delay the staggered reintroduction of the 5p fuel duty discount in order to offer some breathing space for hard-pressed households.”
Prime Minister Sir Keir Starmer has subsequently said the Government will keep the situation “under review” given the Middle East conflict.
Why diesel costs are climbing faster than petrol
Steven Greenall, protection adviser at Rayleigh-based Protect and Lend, outlined why diesel is increasing more rapidly than petrol.
He explained: “Put simply, diesel is a more complex carbon product. It is more expensive to refine from crude oil than petrol, the UK is more dependent on the importation of diesel than petrol, and margins are increased more than petrol at the pump.”
Rohit Parmar-Mistry, founder of Burton-on-Trent-based Pattrn Data, explained: “Diesel is not just ‘oil plus tax’. At the pump it is driven by the middle distillate market (diesel, jet fuel, heating oil), and that market can tighten even when petrol is relatively well supplied. Right now diesel is likely seeing a wider ‘crack’ spread: refiners are charging more margin to turn crude into diesel because inventories are lower and supply is less flexible.
“HGVs, vans, construction and logistics keep demand steady, while jet fuel competes for the same refinery output. Maintenance or unplanned outages hit diesel harder. Geopolitics matters too. The current Iran war is pushing up risk premia via shipping disruption, insurance costs and shifting trade flows.”
Watchdog warns retailers over pricing
On Thursday, the competition watchdog announced it had placed fuel retailers “on notice” that it was intensifying scrutiny of petrol and diesel prices amid the Middle East conflict.
The Competition and Markets Authority (CMA) informed companies operating thousands of forecourts nationwide that it was accelerating formal requirements for them to provide revenue, costs and sales data. The regulator stated the action would accelerate its examination of fuel profit margins made by retailers since the conflict started.
The CMA confirmed it would also assess how rapidly petrol prices rise and fall in response to wholesale cost fluctuations, and whether there’s evidence of so-called “rocket and feather” pricing – where costs surge swiftly when oil prices increase, but decline gradually when oil prices drop.
Whilst acknowledging that firms throughout the economy were likely facing considerable pressure from soaring energy costs, which could impact pricing, it emphasised that filling stations “should not exploit the situation”, noting that any evidence of such behaviour would be highlighted in its pricing update, “which will be published as soon as possible”.
The CMA’s executive director for markets, Juliette Enser, said: “While price increases might be inevitable because of rising wholesale costs, it is important that those increases reflect genuine cost pressures. We will be closely scrutinising and reporting on what’s happening with fuel prices and call out any concerning behaviour.”
