When Iran and the United States signed a peace deal on 18 June aimed at ending the war that erupted in February, the immediate hope was that the reopening of the Strait of Hormuz would stabilise global energy markets. But while petrol prices have started to drift lower, the relief has yet to reach household energy bills, which are about to rise sharply.
The war, which pitted the US and Israel against Iran, sent shockwaves through the global economy. The closure of the Strait of Hormuz, a vital shipping corridor for oil and gas, drove up prices on everything from energy bills to air fares. Now, with the Strait set to reopen, some of the most contentious issues – including Iran’s nuclear programme – have been deferred for 60 days, casting doubt on the deal’s long-term durability.
“Petrol prices have begun to fall after Iran and US signed a peace deal on 18 June, but UK energy bills are still set to rise 13% next month.”
For drivers, there has been a noticeable improvement. According to RAC Fuel Watch data, the average price of petrol in the UK stood at 154.72p per litre as of Thursday, while diesel was 174.30p. That is still far above the pre-conflict levels of 132.05p and 141.6p respectively, but a marked fall from the peaks reached during the conflict. In the US, gasoline prices have dropped to $4.05 per gallon from a war-time high, though they were $2.94 before the war began.
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.”
Gas prices, which almost doubled at the start of the conflict, have also eased. The benchmark UK gas price, which was below 80p a therm before the war, soared to 157p by 19 March. It has now fallen back to 98p. However, the consultancy Cornwall Insight warned it would be “overly optimistic” to assume prices will quickly return to pre-conflict levels.
That caution is well-founded, because UK energy bills are about to increase regardless. Ofgem, the energy regulator, has already set its next price cap for July, and it cannot be changed. The average household bill will rise by 13% – or £221 per year – from next month, affecting 33 million households in England, Wales and Scotland.
The aviation sector also felt the pinch. Europe gets about half of its jet fuel from the Gulf, and prices soared from $784 per tonne to $1,838 in the weeks after the war began, prompting some airlines to announce fare hikes. With the Strait reopening, there is hope that jet fuel costs will stabilise, but the deferred negotiations mean uncertainty remains.