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How will UK petrol prices be affected by the Israel-Iran war? - YAHOO FINANCE
US and Israeli strikes on Iran have caused turmoil in the region and disruption to oil supplies – but how long until it affects UK pump prices?
BY James Hockaday
The conflict in the Middle East could drive up petrol prices, energy bills and inflation in the UK, a geopolitical analyst has said.
Iran has been launching strikes on Israel and US bases and other targets in several Gulf countries in response to the military action, which saw former leader Ayatollah Ali Khamenei killed on Saturday.
On Sunday, three vessels near the Strait of Hormuz, the narrow opening of the Persian Gulf which acts as a vital shipping route for the global oil trade, were struck by an “unknown projectile”, according to the UK Maritime Trade Organisation (UKMTO).
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At least 150 tankers dropped anchor in the open Gulf waters beyond the strait on Sunday, suggesting significant disruption to global oil supplies.
Jorge Leon, senior vice president and head of geopolitical analysis at energy intelligence firm Rystad Energy, said that, if the strait was blocked, the resulting spike in oil prices could directly impact consumers in the UK.
The Strait of Hormuz sees between 15 million barrels of crude oil pass through its waters each day, amounting to around a third of the global crude trade, Mr Leon said.
Qatar, on the Persian Gulf, is one of the world’s biggest exporters of liquified natural gas, and closing the strait could also impact these shipments, he added.
On Monday, the price of Brent crude oil soared by as much as 13%, rising above 82 US dollars a barrel, before paring back.
Fuel industry experts say there is typically a lag between changes in wholesale oil prices and the prices drivers pay at the pump. Here, Yahoo News takes a look at when the UK could feel that change.
When could pump prices start going up?
Edmund King, president of the AA, said: "Pump prices in the coming weeks will inevitably increase, possibly in the short-term back up to where they were at the start of year.
"Petrol in February had been at a low of 131.9p a litre. It had started this year at 135.7p a litre,” he adds. He says "the silver lining" is that, with the UK coming out of winter, the fuel efficiency of cars will improve significantly due to the warmer weather, with engines under less strain due to cold starts and the decrease in the use of heaters, lights and wipers.
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As a rule of thumb, each 1 mile per gallon change is equivalent to 1p on or off a litre of fuel, King adds.
“There is no need for drivers to break their refuelling routine. As well as better fuel efficiency, it takes time for cost increases to work their way through to the pump."
RAC head of policy Simon Williams said: "While the conflict in the Middle East undoubtedly has the potential to push up pump prices in the UK, it’s not a certainty.
“The oil price would have to rise significantly and stay that way for some time to have a dramatic effect. Forecourt prices were already on the rise – due to oil trading – nearer to $70 (around £52) a barrel in the last few weeks.
"Regardless of the current situation, petrol rose by a penny a litre in February and is likely to go up by another penny in the next week or so to an average of 134p a litre.
“If oil were to climb to and stay at the $80 (around £60) a barrel mark, then drivers could expect to pay an average of 136p for petrol. At $90 (around £67), we’d be looking at over 140p a litre and $100 (around £75) would take us nearer to 150p, but it’s all too soon to know.”For comparison, current average UK pump prices are around 132.83p for petrol and 142.38p for diesel, according to RAC Fuel Watch.
In 2021, when asked in Parliament about fuel prices in the UK, the then-secretary for Business, Energy and Industrial Strategy, Greg Hands, said: "Both rises and falls in crude oil prices feed through to pump prices over a period of six to seven weeks."
How does the Middle East conflict affect UK petrol station prices?
Research by the Competition and Markets Authority (CMA) suggests supermarkets have the power to keep their forecourt prices down for longer.
"Given they buy higher volumes compared to independent dealers, supermarkets have a stronger bargaining position," the market competition says.
"For instance, they are able to negotiate not only lower wholesale prices but also shorter contracts, thus allowing them to renegotiate terms more frequently.
"They also have the ability to buy fuel on a 'lag' of one to three weeks," it says, meaning that the wholesale price they pay may be based on prices from one, two or three weeks ago, depending on the negotiated lags.
Looking at the impact of a surge in demand after the COVID-19 pandemic and disruptions to supply due to the war in Ukraine, the CMA suggests the picture is not straightforward.
It said that, in the weeks before its review was published, pump prices had risen while wholesale prices had fallen.
"In interpreting these changes, it is important to keep in mind that changes to wholesale prices are generally only reflected in retail prices after a number of weeks," it said.
"This is because the fuel held by retailers at any moment will have been paid for at a different (earlier) wholesale price.
"During periods of falling wholesale prices, retailer spreads can therefore remain higher than average; but this does not necessarily indicate that retailers are earning higher profits, because many retailers will have paid for wholesale fuel at an earlier, higher price."
