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The onset of conflict between the US, Israel, and Iran in February sent shockwaves through the global economy, particularly due to the region’s vital role in supplying oil and gas. The closure of the Strait of Hormuz, a crucial shipping lane, caused significant disruptions that pushed up prices across various sectors, including energy and travel.
On 18 June, a ceasefire agreement was reached between Iran and the US, with provisions for reopening the Strait of Hormuz. However, critical issues such as Iran’s nuclear program have been postponed for further discussion over the next 60 days, casting uncertainty over the longevity of this truce.
One immediate effect of the earlier conflict was the surge in fuel prices. In the UK, petrol and diesel costs climbed sharply but have recently begun to decline due to hopes of peace. Still, prices at the pump remain considerably higher compared to pre-war levels. For example, UK petrol now averages 154.72p per litre, up from 132.05p four months ago, with diesel also showing a marked rise. Across the Atlantic, US gasoline prices moved from $2.94 to $4.05 per gallon, and diesel jumped from $3.81 to $5.06. Simon Williams, policy head at the RAC, emphasized that while sustained falls in oil and wholesale costs could eventually lead to lower pump prices, the speed of this adjustment remains uncertain. “The big question is how fast will this happen, and whether the fall in pump prices happens as swiftly as the rise drivers had to endure through March and April did.”
Heating costs also saw significant pressure. UK gas prices nearly doubled early in the crisis, impacting millions of households that rely on gas for heating and electricity generation. Although gas prices have dropped from their peak, experts caution that a return to previous low levels is unlikely in the near term. Moreover, UK energy regulator Ofgem has already set a price cap for July that cannot be changed, meaning household energy bills in the UK will increase by 13% or approximately £221 annually for around 33 million homes.
Jet fuel prices, important to air travel, soared dramatically after the outbreak of hostilities, with concerns about fuel availability and rising airfare costs. Though prices have since retraced some of their gains, industry experts warn that prices are expected to remain above pre-conflict levels throughout much of the year. Amaar Khan, a jet fuel specialist, noted that fuel supplies should meet European demand but cautioned against anticipating large price drops soon.
The conflict has also influenced inflation trends globally. Inflation had been declining prior to the war, but the sudden rise in energy prices reversed this trend. In the UK, inflation rose from 3% in February to 3.3% in March before easing somewhat
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