Britons are braced for higher prices at the pumps, after a rise in oil prices caused by the conflict between Israel andIranin recent days.
Oil prices rose again on Monday, as traders worried about the risks of a broader regional military conflict, which could disrupt oil supplies. Iran is a big oil producer, and accounts for about 3% of global supplies.
Asthe conflictentered its fourth day,Brent crude rose 0.5% on Monday morningto $74.60 (£54.91) a barrel, while US crude rose 0.7% to $73.42.
Crude prices jumped more than 13% on Friday to their highest levels since January, andclosed 7% higherfor both benchmarks, afterIsrael hit more than 100 targets in Iranincluding nuclear facilities and missile sites, and Iran responded with its own missile strikes on Israel.
Thomas Pugh, an economist at the consulting firm RSM UK, said: “Just as tensions and uncertainty around global trade and tariffs seemed to be easing with a deal between the US and China on tariffs, the Israel-Iran escalation represents a new source of geopolitical tension.
“The main way this will impact UK businesses and the economy is through higher oil and natural gas prices.”
He noted that oil prices have risen by about $10 a barrel in the past week, which is likely to result in a 5p increase in petrol and diesel prices at the pump over the “next couple of months”.
On Monday, petrol prices hovered between 128.9p and 131.9p a litre in the London area, and diesel about 134.9p a litre, according toPetrolprices.com.
However, there has not been a complete sell-off in oil markets. In London, the FTSE 100 share opened up 0.2%, and the oil companies BP and Shell’s stocks were up just over 1%. Stock markets in Germany and France rose marginally on opening.
“The market currently anticipates a limited conflict, though there is little indication that hostilities will end quickly,” said Jochen Stanzl, the chief market analyst at CMC Markets. “It is expected that fighting will continue unabated this week, albeit on a limited scale.”
James Hosie, an analyst at Shore Capital, said the spike in Brent crude to $75 a barrel could be temporary, if the direct impact on Iran’s oil facilities remains limited.
Over the weekend, airstrikes by Israel targeted energy assets including the Shahran oil depot and Shahr Rey refinery close to Tehran, and the South Pars gas field. This raises the risk of a direct impact on Iran’s 2m barrels of oil exports a day.
There are fears that Iran’s next response could target regional energy supplies by disrupting tanker movements in the strait of Hormuz – the waterway off the south coast of the country through which 20% of global oil supplies and 20% of liquefied natural gas flow.
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This would mark a significant escalation of the conflict, as it would affect exports from Saudi Arabia and other Middle Eastern oil and LNG producers, along with their customers, particularly China, Hosie said.
However, he said other members of the Opec oil cartel and allies, notably Saudi Arabia, could raise oil production to offset any disruption to Iranian exports, and others such as US shale producers could also step in.
The price of oil had been well below the $80.53 a barrel average recorded last year before the conflict, withprices at the pump easing.
Rachel Reeves said over the weekend that the UK government would do “everything in [its] power” to protect people in Britain from the knock-on economic effects.
The chancellor would not “take anything off the table” to tackle the threat of rising energy costs,she told the BBC’s Sunday with Laura Kuenssberg programme.
After Russia’s full-scale invasion of Ukraine in 2022, oil prices spiked to nearly $130 a barrel, raising prices for everything from transport to food.
“There is no complacency from myself or the Treasury,” Reeves told the BBC. In 2022, the Conservative government stepped in to help households with their energy bills, but the chancellor said “we are not anywhere near that stage at the moment”.