Ask Onix
Fuel prices surge as Middle East tensions disrupt energy flows
The escalation between the US, Israel, and Iran has triggered immediate spikes in oil and gas costs, raising concerns over household budgets worldwide. In the UK, petrol prices climbed to 137.51p per litre last week-up 4.68p since hostilities began-while diesel jumped 8.59p to 150.97p, according to the RAC. US figures show a similar trend, with gasoline rising from $2.94 to $3.02 per gallon over the same period.
UK gas prices have more than doubled since the conflict erupted, with benchmark rates peaking at 171p per therm before settling at 156p. While still below the 2022 high of 600p, analysts warn prolonged instability could push costs higher, potentially lifting the UK energy price cap this summer.
Shipping chaos threatens supply chains and inflation
Traffic through the Strait of Hormuz-vital for global oil and gas shipments-has ground to a near halt after Iranian threats to target vessels. Around 200 tankers remain stranded, while insurance premiums for ships linked to the US, UK, or Israel have surged. The cost of hiring a supertanker from the Middle East to China hit a record $400,000 per day last week, nearly double pre-conflict rates.
"Rising fuel costs will force carriers to raise rates globally, not just in the Middle East," said Sanne Manders, president of logistics firm Flexport.
The IMF notes that shipping disruptions typically feed into consumer prices gradually, with peak inflation effects appearing after 12 months.
Fertilizer shortages loom as production halts
The Middle East supplies critical fertilizer ingredients, including natural gas used in production. QatarEnergy, a major exporter, suspended operations after military strikes on its facilities. The US benchmark price for urea fertilizer soared 25% to $578 per tonne on Monday, though experts caution it's too early to predict supermarket price impacts.
Air travel costs set to climb
Europe sources roughly half its jet fuel from the Gulf region. Since the conflict began, benchmark jet fuel prices have nearly doubled-from $830 to over $1,500 per tonne-matching 2022 highs following Russia's invasion of Ukraine. Airlines face higher operating costs (fuel accounts for 20-40% of expenses), which could translate to pricier tickets or cancellations.
Some carriers, like British Airways and EasyJet, are shielded by long-term fixed-price contracts, while US airlines may face steeper short-term increases.
Inflation fears delay interest rate cuts
Global inflation had been cooling-UK rates fell to 3% in February-but the conflict threatens to reverse this trend. Central banks may delay interest rate cuts to curb price pressures, affecting mortgages and savings. Analysts now expect fewer UK rate reductions this year, with some predicting potential hikes.
The IMF called it "too early" to assess the full economic impact but warned that duration and intensity of the conflict would be decisive.
