The Iran-US conflict has caused a 10% surge in oil prices, prompting concerns about rising fuel costs for drivers. This jump in oil prices is due to Iran's warning to vessels not to pass through the Strait of Hormuz, a critical shipping route for 20% of global oil and gas. The potential knock-on effect on other goods prices is a cause for worry.
The AA motoring group predicts fuel costs could rise to pre-conflict levels within weeks, reversing the recent downward trend. The current average petrol price is 132.6p per litre, and diesel is 142.3p. If oil prices remain high, drivers could face an average of 136p per litre of petrol.
The conflict's impact on food prices is also a concern. Higher fuel costs increase transport costs for businesses, which may be passed on to consumers, raising the cost of living. Additionally, crude oil is used in fertiliser production, which could affect food prices.
UK households' energy bills are protected from immediate wholesale cost increases, but the conflict's impact may be seen in domestic variable energy tariffs from July. The Bank of England's interest rate cuts could be affected by rising oil prices, which could impact inflation and borrowing costs.
The long-term consequences of the conflict on oil prices and the economy remain uncertain, leaving the Bank of England in a cautious position.
