Surging petrol prices, higher mortgage rates and queues at the supermarket: How Iran conflict could affect YOUR finances

Iran’s attacks across the Middle East may seem a distant rumble from Britain but the conflict has triggered consequences that are likely to affect all our finances.

Thousands of flights have been cancelled, while major shipping disruptions will push up the price of certain goods, say experts.

Gas prices have already leapt 90 per cent in Europe and it will not be long before we feel the pinch at the petrol pumps.

Analysts also predict higher prices for groceries and an impact on mortgage rates.

Here’s what you need to know.

Are my energy bills likely to rise?

Attacks on tankers in the Strait of Hormuz, an important shipping channel linking the oil-rich Persian Gulf to the Arabian Sea, has caused a huge backlog of maritime traffic.

This could send energy prices soaring around the world.

Gas prices have surged by more than 90 per cent as QatarEnergy, one of the world’s largest producers of liquefied natural gas, was forced to halt production on Monday after its facilities were targeted by Iranian drones.

UK households were last week told their energy costs are set to fall, thanks to the Ofgem-set price cap dropping by £117 a year from April 1 to June 30, bringing typical bills down to £1,641 per year. 

It looks like this reprieve may now be short-lived.

Dr Jonathan Owens, a senior lecturer in operations management at the University of Salford, says: ‘Although the UK imports oil and liquefied natural gas from a variety of sources, global energy markets are interconnected. 

‘If supplies through the Strait of Hormuz are reduced, competition for alternative sources intensifies, driving up prices worldwide.’

Ofgem’s energy price cap is set every three months and is determined by wholesale energy markets. 

Around 22million homes are on a variable rate tariff, which means their bills rise and fall in line with the cap.

Analysts at Stifel said a trebling in wholesale European gas prices would be enough to drive the UK’s energy price cap as high as £2,500 a year for the three months from July 1, a repeat of the crisis that followed Russia’s invasion of Ukraine.

The gas price influences the cost of electricity so both elements of household bills would rise. If the war rages on, it may be worth considering signing up to a fixed deal before July.

The top fixed tariff at the moment, from Outfox Energy, offers annual savings of £132 against the upcoming April price cap. If the cap rises in July, households could save far more.

Will petrol be more expensive?

Around one in five of the world’s oil barrels passes through the Strait of Hormuz and continued disruption could send the oil price beyond $100 a barrel, experts say.

Yesterday, the US warned of an ‘imminent’ Iranian missile or drone attack on the Saudi city of Dhahran, which is a major centre for the oil industry as well as being home to Saudi Aramco’s headquarters and the location of a US consulate.

This could have profound consequences for prices at fuel pumps. Brent crude jumped 5 per cent to $80 a barrel yesterday. 

This will, in turn, drive up petrol prices. Edmund King, president of the AA, says: ‘The turmoil across the Middle East will surely be a catalyst to disrupt oil distribution globally, which will inevitably lead to price hikes.’

But just how much it will push up UK petrol prices depends on how long shipping in the Strait of Hormuz is disrupted and the length of the conflict.

Yesterday, an Iranian official declared his country would ‘set fire to anyone who tries to pass through’ the key waterway.

Simon Williams, head of policy at the motoring group RAC, says: ‘The oil price would have to rise significantly and stay that way for some time to have a dramatic effect.

‘If oil were to stay at the $80 a barrel mark, then drivers could expect to pay an average of 136p for petrol. At $90, we’d be looking at over 140p a litre and $100 would take us nearer 150p.’

What about the cost of food?

Grocery prices were edging up even before the war in the Middle East. Food price inflation rose to 4.3 per cent in February, ending four months of falls.

But the spike in oil and gas prices could trigger higher inflation and lead to increased costs.

Shipping giants, including Danish Maersk, have suspended shipping through the Strait of Hormuz, causing chaos to global supply chains.

Dr Owens says the price of many imported foods depends on strong international supply chains and affordable fuel prices to transport them.

The price of fertilising produce will also be pushed up by higher energy costs, making producing food more expensive. 

He adds: ‘For UK supermarkets, the impact on food prices could be relatively swift, unless retailers choose to absorb some of the cost in the short term.’

Staples such as rice, grains and vegetable oils are particularly vulnerable. 

But even fresh produce sourced from Europe, such as potatoes from the Netherlands or oranges from Spain, is not immune to price rises, as higher energy and transport costs will inevitably filter through to the prices in shops.

Is my savings rate in danger?

One bright spot for households is that savings rates should stay higher for a bit longer, as the Bank of England is more likely to delay a cut to interest rates to combat any rise in inflation.

Before last week, investors expected the Bank of England to cut the base rate once more at the next meeting of the Monetary Policy Committee on March 19. But the situation in the Middle East will now cause the Bank to be more hawkish, savings experts say.

James Blower, founder of website the Savings Guru, says: ‘Markets have already reduced the chance of a base rate cut from 86 per cent at close on Friday to 30 per cent yesterday. 

I expect those odds to fall during the week and I cannot see a cut on March 19 happening unless we have a peace agreement in place, or looking very likely, by then.’

Andrew Hagger, founder of independent information website MoneyComms, says: ‘My view is that we could see that rate cut being held, which means that savings rates should fall less quickly. 

I can’t see savings rates going any higher, but it means they might hold up at current levels for longer.’ The best easy-access deal currently pays 4.25 per cent, while the best one-year fixed-rate deal pays 4.23 per cent.

However, over the long-term, savings rates will continue to fall as the base rate is expected to be cut over the next year.

Fixed-rate savings are also priced on the market’s future expectations for base rate, rather than its current level.

Mr Blower says: ‘The reality is the war in Iran is more likely to slow the rate of decrease rather than see rates held indefinitely. 

‘Markets still expect a 3.25 per cent base rate by the end of 2026 and, if that’s where we are heading, fixed rates significantly north of 4 per cent don’t look justified.’

Will mortgages still go down?

The flipside to base rates cuts being delayed is that mortgage rates, which have been slowly inching down to the relief of millions of borrowers, could now stay higher for longer.

Mr Hagger says: ‘We had expected mortgage rates to come down but that is potentially not going to happen for a little while depending on how long the conflict drags on.

This is bad news for those expecting to remortgage soon. ‘Mortgage holders may have to wait two or three months before they see any action on rates going down,’ Mr Hagger says.

Swap rates, which fixed-rate mortgages are priced on, have increased in recent days, with two-year and five-year swap rising 0.24 percentage points and 0.2 percentage points respectively between Friday and yesterday, to 3.56 per cent and 3.68 per cent.

Swap rates determine the cost for banks to borrow money to lend to homeowners.

Expert Samuel Mather-Holgate, of financial planner Mather & Murray Financial, says: ‘The downward trajectory of swaps is no more. On the back of events unfolding in the Middle East, there’s every chance mortgage rates will rise again.’