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Global stock markets experienced a surge and crude oil prices dropped following reports of a two-week ceasefire in Iran. Despite this, concerns remain over the long-term financial impact, with many fearing that lasting damage has already occurred. Recent weeks have seen a blockade of ships transporting oil, liquefied natural gas (LNG), and fertilizer through the Strait of Hormuz, alongside significant damage to production facilities in the Gulf region.
Even if the ceasefire continues and a peace agreement is finalized, experts suggest it will take several months for oil production to restart and for supply chains to stabilize. The reduction in crude prices has yet to translate into lowered fuel costs for consumers. According to Simon Williams, head of policy at the RAC, despite today’s crude oil price decline, fuel prices at the pump remain higher than before the conflict and drivers should not expect substantial decreases soon. He highlights that smaller independent fuel stations, which buy oil at daily market prices rather than fixed contracts, might be quicker to offer reductions. Williams emphasizes that the future of prices hinges on the ceasefire’s durability, free passage through the Strait of Hormuz, and the longer-term impacts on Gulf oil production, underscoring that wholesale fuel prices need to remain low for several weeks to see meaningful decreases at the pump.
Rachel Winter from Killik & Co cautions that predicting when fuel prices will fall is challenging, suggesting a timeframe of weeks or even months. Jet fuel prices have roughly doubled compared to pre-war levels, as noted by Willie Walsh, head of the International Air Transport Association. He explains it will take months for jet fuel supplies to reach necessary levels even if shipping routes reopen immediately. Airline fare increases and route cancellations have already been reported, reflecting these pressures. Winter adds that refinery damage further complicates the situation, while Alan Gelder of Wood Mackenzie stresses that full normalization requires reestablishing the entire supply chain, from shipping to refinery operations, a process he expects will span weeks rather than days.
Food prices are also anticipated to rise as a third of the world’s fertilizer supply transits the Strait of Hormuz, pushing recent fertilizer prices upwards. The agricultural sector has been hit by increased costs for fuel and energy, affecting transportation and farming operations across the UK. The Food and Drink Federation points out that uncertainty persists despite the ceasefire. Their chief economist, Dr Liliana Danila, notes that it could take six to twelve months for Gulf supply chains and energy infrastructure to recover. She warns that manufacturers will continue to face rising costs for supply chain inputs, leading to sustained price pressures. Even if the conflict resolves soon, the Federation expects UK food inflation to reach at least 9% by year-end.
Regarding energy, households protected by Ofgem’s price cap have so far avoided the full impact of rising wholesale gas costs. The price cap is set to reset in July, with expectations of a significant increase as the recalculation window is already more than halfway through. Dr Craig Lowrey from Cornwall Insight remarks that while the ceasefire alleviates immediate gas market pressures, it “does not wipe the slate clean.” If the Strait of Hormuz remains open, gas prices may ease, influencing the July cap, but unless prices drop below pre-conflict levels, earlier wholesale increases will still affect bills. Lars Jensen of Vespucci Maritime indicates that despite a rise in vessels exiting the Gulf, the two-week pause is unlikely to restore full confidence in safe transit. Additionally, ongoing damage to gas infrastructure in Qatar means supply constraints and high wholesale prices will likely persist for some time, limiting how much the July price cap can be lowered
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