Britons could feel the economic effects of the Iran war for up to eight months after a deal to reopen the Strait of Hormuz is secured — a timeline that would push the impact well into 2027.
The closure of the strait, a critical global shipping lane that once carried a fifth of the world’s oil and gas, has sent energy prices soaring since the US-Israeli war on Iran began.
Higher prices for petrol, food and flights are already feeding through to households, and the Government has warned the squeeze will continue long after any ceasefire deal is reached.
Economists have also cautioned that a prolonged closure risks pushing the UK towards a technical recession, with room for the Government to cushion the blow described as limited.
Here is what is happening, how long it could last, and what ministers are doing to protect Britons’ finances and summer plans.
Higher prices until 2027
Darren Jones, Chief Secretary to the Prime Minister, told the BBC’s Sunday With Laura Kuenssberg programme that households should expect higher prices for energy, food and flights in the months ahead — not just the coming weeks.
“That’s probably going to come online not just in the next few weeks, but the next few months,” Jones said. “There’s going to be a long tail from this.”
Asked to be more specific, Jones said the Government’s best estimate was that the economic impacts would continue to feed through the system for “eight-plus months from the point of resolution.” Given there is no sign of the Strait reopening in the coming days, this estimate takes us into early 2027.
Jones said ministers are focused on identifying what they can do “within our power to help people to get through those difficult times,” adding that he and the Prime Minister are examining all available options.
Two particular pressure points have been identified by the Government heading into summer: jet fuel for aviation and carbon dioxide, or CO2, which breweries use to carbonate drinks and food producers rely on more broadly.
Leaked Government plans outlined a reasonable worst-case scenario in which shortages of certain foods could hit supermarket shelves if the Strait of Hormuz remains closed over the summer months.
The economic risk
Raj Badiani, economics director at the financial data firm S&P Global, told The i Paper that a continued effective closure of the waterway “would prolong elevated energy costs and increase the risk of damaging supply chain disruptions, which heightens the chance that the UK could come close to a modest technical recession in the second and third quarters of this year.”
Badiani warned that mounting energy, fuel and material shortages “would trigger a tougher UK inflation environment and a tighter squeeze on household real incomes,” and said the Government has “limited fiscal space to curtail an acute inflationary shock.”
The Strait of Hormuz — a narrow waterway between Iran and Oman — once carried roughly a fifth of global oil and gas. Its closure since the outbreak of the US-Israeli war on Iran has sent oil and gas prices sharply higher, feeding through into petrol and the cost of flights. Energy bills in the UK are protected until the next price cap change which is due in July.
Trump announced an indefinite extension of a US ceasefire with Iran last week, pausing most of the fighting. But efforts towards a longer-term deal have stalled after the US president instructed his envoys not to travel to Pakistan for talks this weekend, leaving the timeline for any resolution deeply uncertain.
The plan to protect consumers
The Prime Minister Sir Keir Starmer is chairing meetings of the Middle East Response Committee of Cabinet, a body established specifically to manage the conflict’s fallout, while a separate contingency planning group of ministers led by Jones is convening twice a week.
The Government has also provided funding to reactivate the Ensus bioethanol plant, which produces CO2 as a by-product, to shore up supplies of the gas. It is also taking steps to weaken the link between electricity and gas prices, a move aimed at shielding households and businesses from further energy price spikes.
On aviation, airports will be given greater flexibility to allow airlines to cancel flights without losing their allocated take-off and landing slots if fuel shortages prevent them from operating. The Times has reported that the Government also plans to temporarily relax laws requiring airlines to run part-full flights from UK airports, allowing schedules to be consolidated well in advance of any potential shortages to reduce the risk of last-minute cancellations.
UK airlines have said they are not currently experiencing a shortage of jet fuel, with carriers buying supplies in advance and airports maintaining their own stocks. The Government has said it is nonetheless “closely monitoring” the position.
The Liberal Democrats have called for legislation to put food security at the top of the Government’s agenda, urging that a bill be included in the next King’s Speech.
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