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| How much more could diesel and gasoline cost in the UK (Image: Getty Images) |
Motorists in the UK are facing higher fuel costs as the US-Israel war with Iran continues.
Since the conflict started on February 28, missile and drone strikes have slowed or stopped all energy production and transportation across the Middle East, leading to an increase in wholesale oil and gas prices. Higher energy prices may lead to a rise in the cost of other goods - but it often shows up first at the fuel pump.
How quickly will oil prices affect petrol and diesel?
Because crude oil is a key component of gasoline and diesel, higher wholesale costs increase the cost of fueling a vehicle. Since the war began, the price of a barrel of Brent crude, the global benchmark for oil prices, has jumped from $73 to around $103 a barrel as of Monday, 23 March.
Analysts say every $10 increase in the oil price pushes up pump prices by roughly 7p a litre.
According to the most recent information provided by the RAC, a motoring organization, average gasoline prices have increased by 16.6 pence, or 149.44 pence, since the outbreak of the war.
The price of diesel has increased by 33.4p to 175.73p, and it is likely to continue rising. Although some retailers have been accused of price gouging, the chancellor has requested an investigation from the markets regulator due to the fact that there is typically a delay in the impact that changes in oil markets have on fuel prices, which can take up to a fortnight. If oil stays at around $100, the RAC predicts that petrol could rise towards 150p a litre while diesel could reach almost 180p. RAC head of policy Simon Williams said diesel "appears to be on a crash course to an average price of 170p".
Where does the UK get its oil and gas from?
The UK is heavily reliant on oil and gas imports, with the lion's share of those imports coming from the US and Norway.
The price of oil on the global market determines how much the UK pays for it.
Though the UK does get oil from the North Sea, most of that is exported for refining elsewhere.
What impact could it have on food prices?
The cost of other goods, such as food, may rise in tandem with oil prices if they continue. Businesses transporting goods across the country incur higher transportation costs as a result of higher prices for gasoline and diesel, which can be passed on to customers by supermarkets and shops. "Some elements of crude oil are used in fertiliser, and so there could be a cost implication in terms of food prices," Benjamin Godwin, partner at investment advisory firm PRISM Strategic Intelligence, told the BBC.
However, if the conflict is short-lived then it is unlikely to result in an immediate increase in food prices, he said.
Will my energy bills rise?
In the short term, millions of UK householders' domestic gas and electricity bills are shielded from any impact on wholesale costs paid by suppliers.
People whose energy bills are governed by the price cap already know what their unit prices are now, and will be for the three months from April. That cost has already been established.
However, depending on how long the conflict lasts, there could be an impact on prices when the next price cap is set, for the three months from July.
Anyone who has fixed their energy tariff already will not see a price rise, but suppliers have started reconsidering what they are willing to offer for those fixed-price deals, and have been pulling cheaper deals off the market.
Heating oil is used by many households in Northern Ireland, and in some rural areas. The prices do fluctuate more directly in response to the oil price, so the latest global uncertainty has pushed up costs for those households refilling their tanks.
The prime minister has announced a £53m support package to help those hit by the sharp increase in heating oil.
Will this affect UK inflation and interest rates?
It was anticipated that UK inflation, which measures the rate of price increases, would continue to fall this year. It has decreased in comparison to the heights reached immediately following Russia's full-scale invasion of Ukraine four years ago. Interest rates, which are used by the Bank of England to keep inflation close to its 2% target, were expected to continue on a steady downward trend this year as a result.
However, inflation may not fall as quickly or as quickly as anticipated if higher energy costs result in price increases across the board. That throws any interest rate cuts into question, at least for the time being.
As a result mortgage lenders, who base the rates they offer on what they expect the Bank of England to do with interest rates, have started to increase their own lending rates. Anyone remortgaging or taking out their first mortgage is likely to face slightly higher rates than they would have before this week's events.
According to Subitha Subramaniam, chief economist and head of investment strategy at Sarasin & Partners, a lot depends on how long crude prices stay high and if there is a "cascade" into other prices like food, agriculture, and other products. But there is unlikely to be much influence on prices before the Bank of England's next rate-setting committee meeting.
"I would say the prudent course for the Bank of England would be to remain on hold," said Subramaniam.
Source: BBC
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