On 18 June, Iran and the US signed a deal aimed at bringing an end to the war that began in February, with the key Strait of Hormuz shipping corridor set to reopen. The outbreak of the US-Israel war with Iran sent shockwaves across the global economy, driving up prices from energy bills to air fares as the region’s major oil and gas supplies were disrupted.
Since the deal was announced, hopes for an end to hostilities have caused prices at the pump to drift lower in recent weeks, but they remain far above pre-conflict levels. As of Thursday in the UK, petrol cost an average of 154.72p per litre and diesel was 174.30p, according to RAC Fuel Watch data. Nearly four months ago, before the war began, petrol was 132.05p a litre and diesel 141.6p. In the US, the average gasoline price has fallen from last month’s peak above $4.50 to $3.97 per gallon, up from $2.98 before the war, while diesel has risen from $3.76 to $5.09.
“Iran-US peace deal signed 18 June; fuel prices falling but energy bills still set to rise 13% from July.”
Simon Williams, head of policy at the RAC, said the recent fall in global oil and wholesale petrol prices “if sustained – will in time lead to much lower prices at the pumps”. But he added: “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.”
UK gas prices almost doubled at the beginning of the conflict, sparking fears of higher energy bills. The benchmark UK gas price was below 80p a therm before the war but traded at around 157p by 19 March. Now it’s back down to 98p per therm. However, the consultancy Cornwall Insight says it would be “overly optimistic” to assume prices will quickly return to pre-conflict levels. The UK energy regulator Ofgem has already set its next price cap on household energy bills for July, which cannot be changed. The average household bill is set to rise by 13% – or £221 per year – from next month, affecting 33 million households in England, Wales and Scotland.
The Gulf provides around half of Europe’s jet fuel, and prices soared after the war began. The deal also raises questions about how long this agreement will last, as negotiations on some of the thorniest issues – including Iran’s nuclear programme – will be deferred for 60 days. For now, the immediate relief at the pump may be tempered by the reality of rising energy bills and uncertainty over the long-term peace.