Will petrol prices surge due to conflict in Iran – and could unleaded reach nearly £2 a litre again?

The outbreak of conflict in Iran and retaliatory attacks on the Middle East is likely to trigger a surge in the cost of filling up your car.

Strikes on Iran by the US and Israel over the weekend, which have been followed by retributive strikes in Bahrain, Iraq, Jordan, Kuwait, Oman, Qatar and the UAE, has sparked a near 10 per cent increase in oil prices from markets closing on Friday and opening on Monday.

The price of Brent crude oil – which is typically used in the manufacture of unleaded petrol – rose from $73 to almost $80 per barrel. 

This is the highest price on record for eight months, since the US dropped ‘bunker-buster’ bombs on Iranian nuclear facilities in June. 

Iran’s responsive targeted attacks on oil tankers in Strait of Hormuz – the only sea passage from the Persian Gulf – on Sunday and on Saudi Arabia’s Ras Tanura refinery on Monday morning, means Britons are very much likely to see a rise in fuel prices.

But while the RAC has suggested that oil would need to remain at around $80-a-barrel for an extended period for these costs to be passed on at the pumps, many economists believe prices could hit $100 if the situation drags on for an extended period. 

So, could we see a return of petrol reaching almost £2-a-litre soon? 

The Middle East is the biggest and most vital oil-producing region across the globe.

The Strait of Hormuz on Iran’s southern border – Iran’s target for strikes – is also a fundamental transport network for shipping oil to various markets.

This crucial trading route sees around 21 million barrels per day – which is approximately a fifth of the world’s oil trade – pass through its waters.

The 100-mile stretch links the Persian Gulf to the Gulf of Oman and to the Arabian Sea and the Indian Ocean, with any threat of the waterway becoming blocked likely to spark a rise in oil pricing.

When might pump prices start rising? 

On Monday morning, the average price of petrol was 132.7p per litre.

This is almost 60p shy of the record highest unleaded price of 191.5p seen in July 2022, triggered by Russia’s war on Ukraine.

While fuel retailers adjust their pricing on petrol and diesel based on a number of factors, it is the cost of oil – and its impact on wholesale fuel prices – that has the biggest impact and is most likely to cause fluctuations in fuel bills.

Yet the RAC says increases in crude oil typically takes two weeks to filter through to forecourt pricing in Britain.

However, because oil prices had already been rising in the days running up to the latest conflict with Iran, it said drivers will likely see pump prices increasing as a result of this unrelated shift in the market.

‘Forecourt prices were already on the rise due oil trading nearer to $70 a barrel in the last few weeks,’ explains Simon Williams, fuel spokesman at the motoring organisation. 

‘Regardless of the current situation, petrol rose by a penny a litre in February and is likely to go up by another penny in the next week or so to an average of 134p per litre.’

So, what could happen if oil prices do continue to rise over the coming days and weeks? 

‘If oil were to climb to and stay at the $80 a barrel mark, then drivers could expect to pay an average of 136p for petrol,’ Williams said.

‘A 2p per litre difference from 134p could cost already-cash-strapped drivers an extra £1 per fill-up. 

‘At $90, we’d be looking at over 140p a litre (over £2 more per fill-up) and $100 would take us nearer to 150p (over £3 more), but it’s all too soon to know.’

Even if oil prices surge, the RAC’s forecast is for prices to still be 40p short of the all-time high. 

Gordon Balmer, executive director of the Petrol Retailers Association, the trade body representing hundreds of independent and supermarket filling stations across the country, said the conflict in the Middle East has already impacted the wholesale cost of petrol and diesel. This means ‘pump prices will have to go up,’ he said.

In light of the increase, Balmer has called on Rachel Reeves to scrap her planned fuel duty increase announced in the Autumn Statement.

Fuel duty is currently levied at 52.95p, which it has been since the March 2022 introduction of the 5p duty cut.

But this is only due to remain in place until September. 

Fuel duty is scheduled to then ‘gradually return’ to March 2022 levels (57.95p) by March 2027.

However, the Budget Document also revealed that a planned increase to fuel duty in line with inflation for 2026-27 will be cancelled.

‘Rising fuel prices hurt the economy in the form of higher inflation, impacting already hard-pressed household budgets,’ Balmer said.

‘To help motorists and businesses, I am today writing to the Chancellor urging her to abandon the planned fuel duty increases.’

Reeves could reference the abolishment of the 5p fuel duty cut in her Spring Statement on Tuesday afternoon. 

The boss of one of Britain’s largest petrol station groups has warned the war in the Middle East will ‘inevitably’ filter to the price at the pumps.

Alistair Lock, chairman of the Motor Fuel Group – one of the largest petrol station retailers – warned it is ‘inevitable’ that pump prices will rise on the back of the war in the Middle East.

He told the BBC that petrol would rise ‘in due course’ as oil prices soar, he could not predict how high they would increase or for how long.

‘The two main components of the price of petrol are tax and the price of oil – with the price of oil going up, that is inevitably going to feed through in due course to higher prices at the pump,’ he said.

Neil Wilson, a UK investor strategist at Saxo Markets, said: ‘We are a long way off 2022 in terms of pricing but if LNG [Liquefied Natural Gas] to Europe is effectively shut via Hormuz for a prolonged period we could see chaos.’ 

However, he said he is ‘much more concerned about European natural gas prices than oil prices’. 

Another factor that impacts pump costs is the exchange rate, with oil priced in US dollars. 

A weaker British pound against the US dollar in recent days will too likely push fuel prices marginally higher.

Shipping might have to adjust to Middle East conflict 

Dr Jorge Leon, an energy economist at intelligence firm Rystad Energy, said any potential blockage of the Strait of Hormuz will have an impact on pump prices in Britain.

‘We have a direct effect – which is higher prices at the pump and higher electricity bills, but also a secondary effect, which is things will get more expensive because inflation might increase,’ he said.

However, other experts say the oil sector is prepared to make adjustments to offset any impact of the Strait of Hormuz being targeted.

John Stawpert, principal director and head of the marine department at the International Chamber of Shipping, says this is not the industry’s ‘first rodeo’ and that the sector has the capacity to adapt to challenges in the region. 

He said: ‘It’s important to stress that, whilst this is a big shock, and we are concerned about reported attacks against shipping in the region, trade is continuing to flow, the straits are not closed, so any impact that we would see is likely to be minimal unless there is a big change in the security dynamic in that region.

‘We will continue to assess the situation, shipping lines will continue to do real-time assessments of the threats vessels will face.

‘Ultimately, this isn’t our first rodeo, unfortunately, we have experienced these sorts of threats before in other parts of the world, and shipping is very well placed to adapt in the face of a crisis.’