Drivers are set to see the cost of petrol rise “sharply” in the coming weeks, following the escalating conflict in the Middle East.
The US and Israel have carried out strikes across Iran with retaliatory attacks hitting Dubai, Abu Dhabi, Bahrain, Jordan and Kuwait.
One of the impacts consumers are likely to see is an increase to fuel prices.
Susannah Streeter, Chief investment Strategist at Wealth Club, said: “Oil prices had already been creeping up as nerves became more frayed and they are set to shoot sharply higher given the risks of disruption to global oil supplies.”
Iran has the world’s third largest crude reserves, but it also controls the Strait of Hormuz, a vital passage for tankers and other ships.
Streeter said: “The closure of the strait, through which around 20 per cent of global oil and gas supplies pass, would be hugely disruptive, particularly for other major oil producers in the region like Saudi Arabia.
“With energy and freight costs set to rise, it adds to price pressures, just as inflation appeared to be coming under control in countries like the US and the UK.”
According to the RAC, unleaded petrol is currently averaging 132.68p a litre whilst diesel is 142.34p a litre.
However, Brent crude closed the week at a near seven-month high of around $73 per barrel, climbing roughly 16 per cent since the start of the year.
This cost is likely to be passed on to motorists via prices at the pumps.
Edmund King, president of the AA, said conflict would cause significant disruption to the oil trade. He told The Times: “The turmoil and bombing across the Middle East will surely be a catalyst to disrupt oil distribution globally, which will inevitably lead to price hikes.
“Drivers beware, within the next 10 to 12 days we could be seeing record prices at the pumps.”
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However, some experts suggested higher prices were not a certainty just yet.
Damian Pudner, an economist, said: “A 10 per cent jump in oil futures seen this weekend doesn’t mean petrol prices surge on Monday morning. Forecourts buy fuel in advance and prices tend to adjust with a lag.”
Oil futures are contracts that allow investors to buy or sell oil at a predetermined price at a future date. The higher cost to buyers, the higher the cost would eventually be to motorists.
Pudner added: “But if crude stays higher, drivers will start to feel it at the pump within weeks. The key question is whether this is a brief spike or the start of something more persistent.”
He highlighted the role of Opec – the cartel of oil-producing countries that co-operate in order to set oil prices. “I’d also expect Opec to increase output that will help offset some of the move up in price,” he said.
Pudner said the increase to oil costs would also have a knock-on impact to inflation in the UK: “A jump in oil is an imported shock that will push headline inflation higher in the near term.
“The Bank of England should look through a temporary spike – monetary policy cannot offset a geopolitical move in crude. But if higher energy prices prove persistent and begin feeding into wages and services inflation, that is when policy must respond.”
Inflation is currently at 3 per cent, above the Bank’s two per cent target, but was predicted to fall towards that level in spring.
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