Soaring oil prices threaten to feed through to everything from the cost of food to your holiday flight
Pain at the pump is the most likely immediate impact of unfolding events in the Middle East.
We’ve started to see it, with the average price of petrol up by nearly 2.5p a litre since Saturday and diesel by more than 3p. There are reports of prices having rocketed 11p a litre in some places and signs of drivers taking nothing to chance and rushing to fill-up, just in case.
And it’s still early days, and the price of oil has already surged to more than $82 a barrel. The AA warns further pump price rises in the coming weeks are “inevitable”, with the group FairFuelUK predicting prices will increase by between 5p and 10p a litre in the next week or so.
The good news is that any increases come from what had been a period of low fuel prices, with petrol averaging 131.9p in February. Everything now depends on what happens in the Gulf, and if – as seems unlikely – the war is short-lived.
The effective closure of the key Strait of Hormuz – through which around a fifth of the world’s oil and gas is shipped – has triggered panic among global markets. By doing so, it has knocked out around 14 million barrels a day worth of supplies.
That is less of an immediate concern for oil, as there are large stockpiles that can be drawn on in times of crisis like this. But as those stocks begin to reduce, so the price of oil could begin to spiral.
It’s reckoned there are about 60 days worth of oil stashed away and ready to be used. If that were to fall – even to 55 days – it could pave the way for even bigger price hikes.
Higher pump prices would knock already fragile consumer confidence, as well as be another hit to household finances. It’s why there are already calls on Chancellor Rachel Reeves to scrap a fuel duty rise in the autumn.
What was supposed to be a temporary 5p a litre cut will be phased out from September, as it stands. With fuel duty overall expected to raise £24billion this financial year, doing another U-turn would be costly.
And oil prices don’t just impact households on the forecourt but in the shop aisles too. Research by Deutsche Bank shows half of what we buy is “highly sensitive” to energy prices, so gas as well as oil. That includes much of the food we buy. But it also extends to whatever is transported by road, through to air fares.
Yet while households are losers, there are inevitable winners from rocketing fuel prices. Shares in oil giants, including BP and Shell, rose sharply in the aftermath of the attacks.
A less obvious winner, in economic terms, is Russia. Much of the oil tankers from the Strait of Hormuz were destined for China and India.
Without those supplies, there are more likely to buy Russian oil instead, boosting President Putin’s coffers as he wages war in Ukraine.
