Motorists are being urged to cut back on unnecessary journeys as oil prices rise sharply following the escalation of conflict in the Middle East.
The price of Brent crude, one of the world’s main benchmarks for oil, climbed above $100 a barrel on Monday for the first time since Covid in 2022. At one point it reached around $115 before easing back, though it remains significantly higher than before the latest escalation.
Brent crude is a type of oil extracted from fields in the North Sea and widely used as a global reference price. When its price rises, it usually means the cost of petrol and diesel will also increase, as fuel retailers pay more for the crude oil used to produce fuel.
Motoring groups have warned that drivers in the UK could soon see the impact at the pump.
Simon Williams, head of policy at the RAC, said:
“Unleaded is almost certainly going to reach an average of 140p in the next week or so, while diesel looks highly likely to climb to at least 160p a litre.”
According to RAC data, petrol prices have already risen by nearly 5p a litre to 137.5p since US and Israeli strikes on Iran began. Diesel has increased by almost 9p during the same period to around 151p per litre.
The AA has urged motorists not to panic buy fuel but instead focus on using less of it.
Edmund King, president of the AA, said:
“Our suggestion is that drivers should not change their refuelling habits but can consider cutting out some non-essential journeys and changing their driving style to conserve fuel.
“These measures linked to warmer weather means that drivers can ensure their fuel stretches further.”
Drivers are also being encouraged to make small changes that could reduce fuel consumption.
Mr Williams said:
“We encourage drivers to continue filling up as normal but to shop around for the best prices.
“Driving fuel-efficiently by avoiding harsh accelerating and braking and ensuring tyres are inflated to the right pressures can help eke out every last mile and save money.”
The sharp rise in oil prices has been driven by concerns that energy supplies could be disrupted through the Strait of Hormuz, a key shipping route along Iran’s coast where roughly a fifth of the world’s oil and gas exports normally pass.
Shipping through the channel has slowed significantly as tensions escalate, leaving millions of barrels of crude effectively stuck in the Gulf.
Analysts say the market is beginning to react to the potential scale of disruption.
Jordan Rochester, executive director at Mizuho Bank, said the outlook for energy markets was deteriorating.
“The market is waking up from its slumber, coming round to our view that this may be a war but it’s also perhaps the biggest energy supply/logistics crisis we’ve ever seen in modern history.”
He also pointed to political developments in Iran.
“The appointment of Mojtaba Khamenei as Iran’s new supreme leader shows they do not intend to kowtow to US demands just yet and hardliners remain in charge.”
Governments are now considering emergency measures to stabilise energy markets.
Finance ministers from the G7 are expected to hold discussions about releasing oil from emergency reserves coordinated by the International Energy Agency. Reports suggest up to 300 million barrels could be released.
That would be more than double the previous record release following Russia’s invasion of Ukraine in 2022. However, analysts note that even 300 million barrels equates to less than three days of global oil consumption.
Political leaders have also warned about the wider economic consequences of rising energy costs.
UK Prime Minister Keir Starmer said the longer the war continues, “the more likely the potential for an impact on our economy”, adding that the government is working to minimise the effects on British businesses.
In the United States, President Donald Trump said the “short term” increase in energy prices was “a very small price to pay” for world peace.
The surge in oil and gas prices has already affected financial markets. European stock markets fell on Monday, with London’s FTSE 100 down around 1.1%, Germany’s Dax falling 1.6%, and France’s Cac 40 dropping 2%.
Gas prices have also jumped, with UK wholesale gas rising sharply at the start of trading.
Investors are now betting that the Bank of England could increase interest rates later this year as policymakers attempt to contain inflation driven by higher energy costs. Financial markets currently see a 75% chance of rates rising from 3.75% to 4%.
Higher interest rates could push up mortgage costs for homeowners. David Hollingworth, of broker L&C Mortgages, said it was “very, very likely” that lenders would increase their mortgage rates this week, warning of a potential “snowball effect” as banks respond quickly to market changes.
Industry figures suggest around 1.8 million UK households will need to remortgage this year.
Government borrowing costs have also risen, with the interest rate on two year UK government bonds climbing to around 4.12%, up from 3.87% before the conflict escalated.
