What surging oil price means for UK petrol prices, supermarket costs and energy bills

The price of oil soared overnight to their highest level since 2022 as doubts resurfaced about the Strait of Hormuz shipping route opening fully.

The price of Brent crude oil pushed beyond $125 at one stage, reaching a high not seen since Russia’s invasion of Ukraine. By Thursday, 9am BST, the price had pulled back slightly to $118.

The rise came amid fears that US President Donald Trump is preparing for an escalation of the Iran war with further military action.

Talks between the US and Iran over a permanent end to the conflict have been painfully ineffective despite an initial short-term ceasefire agreement – prompting concerns over the ongoing supply of oil and gas to the wider world.

Brent crude, a global benchmark, was priced at below $70 prior to the war starting and is a key pricing component for energy, fuel and transport, food production and general manufacturing, as well as other household costs.

It is important to note that, while a high price, that is the value of June futures. Oil is typically sold by monthly contracts ahead of time, and that contract for June expires on Thursday night, as pricing rolls over into July futures. The price for that contract is presently lower at around $112.

Here’s how the most recent surge could impact key expenses for British households over the coming weeks.

Petrol and fuel

Petrol prices have already jumped by about 10p a litre for petrol and 15p for diesel. Motoring groups, such as RAC, say it usually takes two weeks for big shifts in the oil price to feed through to the pumps.

The AA says that petrol is costing 158p a litre, while diesel is 191p a litre.

For context, the highest price oil ever reached was $147 in 2008. Record pump prices came in July 2022 when petrol was 191.53p and diesel was 199p.

A $10 increase in the price of a barrel of oil works out to roughly 6-8p on the price of a litre of fuel once you adjust for tax.

Danni Hewson, head of financial analysis at AJ Bell, said: “The current price at the pump is already wincingly high and recent falls in the price of oil have been slow to filter through, so today’s spike might not massively increase costs for motorists, especially if it’s short-lived. If oil remains over $120 a barrel, or rises further, motorists will likely be in for an unpleasant surprise in the next couple of weeks.”

Lindsay James, investment strategist at Quilter, said: “UK consumers have faced a price shock at the petrol pumps so far, but as the war and subsequent supply constraints continue, the chance of physical shortages will increase, not just at the pumps but across global supply chains and a range of goods.”

Energy bills

The big factor in most people’s energy bills is gas prices rather than oil – the exception being off-grid customers who rely on heating oil, for whom the government has already offered some support.

The energy price cap was set at £1,641 per year from 1 April to 30 June.

A spokesman for Energy UK said: “We have had elevated gas prices as well since the conflict started. Because of the way the price cap works, that hasn’t hit the majority of customers yet, but there’s going to be a significant rise in July when the next one starts.”

If the oil price remains elevated, it could mean a hike of more like the £332 that had originally been predicted by Cornwall Insight before the ceasefire was announced.

Food and groceries

While there’s no specific amount by which different foods and drinks will rise by, all are affected by rising energy costs and transport costs – the price of growing, manufacturing or moving foodstuffs to sale points.

The Food & Drink Federation (FDF) earlier this year warned grocery prices could rise by as much as 10 per cent, and now notes it can take up to a year for prices to be fully passed through the system, depending on contracts with suppliers, manufacturers and other parts of the supply chain.

“The war in Iran has delivered a cost shock that is already too large for manufacturers to absorb in full. The impact on prices will take time to work its way through the system, but it’s only a matter of time before it does,” said Dr Liliana Danila, FDF chief economist.

Meanwhile, the Energy & Climate Intelligence Unit (ECIU) have warned that poorer UK households will be harder hit by inflationary food costs than their more well-off counterparts. That is due to lower-income households spending a greater percentage of their money on necessities, including food, resulting in a bigger overall hit to spending power and, in turn, living standards.

The British Retail Consortium (BRC) expect that the true full cost won’t be known until 12 months down the line.

“The conflict in the Middle East is adding to existing cost pressures facing retailers, with rising energy costs impacting costs of production, shipping, and distribution. The longer the conflict goes on, the more it will feed into inflation, compounding domestic and policy-related costs already affecting businesses,” said Helen Dickinson, BRC chief executive, while reiterating the supply side contracts meant customers should not face food shortages in most cases.

“Food availability is unlikely to be affected, with 90 per cent of food sold coming from the UK or EU. As the war continues, the rising price of energy and fertiliser will begin to put additional pressures on prices. However, gas prices still remain significantly lower than they were at the start of the war in Ukraine.”

Interest rates and inflation

The Bank of England voted on Thursday to hold interest rates at 3.75 per cent.

There are, however, concerns that this will need to be raised once more later in the year to guard against rising inflation, caused by the price of oil spiking. A further rise in Brent costs, therefore, will add to the worries that Monetary Policy Committee members will see an interest rate hike as necessary.

Higher interest rates mean potentially higher borrowing costs for those not on fixed-rate products, while those needing a new mortgage further down the line will see lenders increase their rates on deals.

Businesses tend to borrow and invest less when interest rates are up, while households spend less on discretionary items – thereby lowering demand and helping to stifle additional price rises, which is what inflation effectively is.

What the experts say

The National Debtline service says they are beginning to see early signs of new cost‑of‑living pressures taking effect, with credit card debt (43 per cent of March callers) and energy bills outstanding (39 per cent) being two key concerns.

Ms James added: “Although the loss of oil supply could theoretically be largely replaced in the short term through a mix of spare capacity, additional pipelines, inventory releases and the temporary removal of sanctions, the obstacles are relatively high. If these issues persist, we could see broadening price rises, not limited to energy bills, for the duration of the blockade.”

Susannah Streeter, chief investment strategist at Wealth Club, warned there could yet be more to come as higher costs ripple through industries.

“With oil storage limited, Iranian facilities may have to reduce production within days. There had been high hopes that a ceasefire would start to see prices at the pumps retreat, but amid this standoff, it seems that the only way is up for the cost of filling up,” she said.

“It’s also set to keep freight costs highly elevated, looks set to push packaging costs higher, given plastics are made from petrochemicals and could have a highly damaging effect on global food production. Urea shipments, used for fertiliser, are blocked and costs have rocketed for farmers around the world, who didn’t buy stocks in advance. The worry is that all these costs will be passed on through supply chains, pushing up the price of everyday goods, later in the year and into next year.”