Petrol price alert: How the Israel-Iran conflict will impact the motorist and UK economy

Motorists have been warned of an imminent hike in prices at the pump as the conflict between Israel and Iran intensifies.

Experts also point to the knock-on effect that rising oil prices could have on the wider UK economy amid concerns that inflation may spike again. It comes as the Bank of England this week announces its latest decision on interest rates with a hold widely anticipated.

Following a 7 per cent surge on Friday, the price of a barrel of Brent crude edged higher on Monday, at around $74, which could have a direct effect on petrol prices in the UK. That would spark the end of a period of falling prices for motorists, with a litre of unleaded currently selling for below 130p on many forecourts - the cheapest petrol prices in Britain for four years.

UK motorists have seen some of the lowest prices for petrol and diesel in four years.

Oil price hikes have followed intensive Israeli aerial attacks that have extended targets beyond military installations to hit oil refineries and government buildings. In response, the Iranian Revolutionary Guard has struck a hard line, vowing that further rounds of strikes would be “more forceful, severe, precise and destructive than previous ones”.

Tony Redondo, founder at Cosmos Currency Exchange, warned of an end to the relative downturn of the price of fuel at the pump for Brits.

He said: “Global oil prices are up, hitting their highest price in almost five months after Israel struck Iran, dramatically escalating tensions in the Middle East and raising worries about disrupted oil supplies.

“That’s the end of the cheapest petrol prices in the UK for four years. Gold has been up to a one-month high as the markets swing to risk aversion mode. Stock markets will sell off. These are all predictable knee-jerk reactions.”

Policymakers meet at the Bank of England this week to decide on the next move on interest rates.

Prem Raja, head of trading floor at Currencies 4 You, added: “Markets are reacting with a classic risk-off tone. Investors are seeking safe havens, and oil prices are rising with supply disruptions feared, potentially ending the UK’s run of low petrol prices.”

Ironically, the strong oil price has been helping to support the wider stock market, with the UK’s benchmark FTSE-100 index proving remarkably resilient amid gains for energy companies and defence contractors. Shares in Footsie heavyweights BP and Shell were bolstered by the higher oil price.

Russ Mould, investment director at AJ Bell, said the latest Middle East conflict remained a “fluid situation” with the potential for markets to experience sudden jolts if the tensions escalate further.

“Global oil prices jumped last week after Israel attacked Iran, raising concerns about major disruptions to supply,” he noted. “Despite a weekend of violence between the two countries, investors showed no signs of panicking, judging by movements in financial markets on Monday.

“The gold price is often a measure of investor sentiment, going up when people are worried and going down when they’re optimistic. The precious metal slipped 0.6 per cent to $3,432 per ounce which indicates that investors remain alert to ongoing geopolitical tensions but they’re not reaching for their tin hats.”

Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, said there were worries that the attacks from Iran and Israel could ignite a wider conflict, destabilising the Middle East and affecting oil supplies.

“There’s an intense focus on the Strait of Hormuz, described as an ‘oil artery’ in the region,” she added. “Around a fifth of global oil supplies flow through this narrow channel and an escalation could disrupt distribution

“Israel has already been targeting Iran’s energy facilities, including Iran’s South Pars gas field. Although gas prices have also edged up slightly, the biggest moves have been seen with crude prices which are up around 12 per cent since hostilities erupted and could head higher if the Strait is targeted.

“The worsening situation is set to be the focus of the G7 meeting of leaders of wealthy nations in Alberta, Canada. While hopes that Trump will sign more deals seem to be keeping trade optimism a bit higher, many countries remain in a queue and the cost to the global economy is mounting.”

Interest rates

UK interest rates are predicted to stay at 4.25 per cent on Thursday at the latest meeting of the central bank’s monetary policy committee (MPC) after inflation jumped in April.

The MPC has voted to cut rates at every other meeting since it started easing borrowing costs last August, from a peak of 5.25 per cent. This has been possible while the rate of inflation has been steadily falling from the high of 11.1 per cent in October 2022, at the peak of the cost-of-living crisis.

However, inflation jumped to its highest level for more than a year in April, according to the latest figures from the Office for National Statistics (ONS). Consumer prices index (CPI) inflation hit 3.5 per cent in April, up from 2.6 per cent in March.

Since releasing the data, the ONS said that an error in vehicle tax data collected meant the April figure should have been 3.4 per cent.

Riz Malik, director at R3 Wealth, fears the escalating conflict in the Middle East could affect the UK’s economy.

“Further global instability is the last thing the UK economy needs,” he said. “We could see a sell off in the equities market as investors often turn to safe havens like gold in times of uncertainty. We could also see the oil markets react sharply, putting renewed pressure on inflation, petrol prices and household energy bills at a time when the UK is already battling already high costs.”

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