Heating oil prices surge over 120% after Iran war – will the government step in?

The price of heating oil has risen sharply following the US and Israel’s strikes on Iran on 28 February, meaning many homeowners now face the prospect of much higher heating bills.

Heating oil, which is used by some in rural areas to warm their homes, has seen its price surge, leaping from around 60p per litre on 28 February to over £1.33 per litre on 9 March.

Heating oil is manufactured by processing crude oil, meaning the price of heating oil is tied to the price of oil – much in the same way that the price of petrol or diesel is.

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An estimated 1.7 million households in the UK use heating oil, and those reliant on the fuel will baulk at the prospect of a 122% price hike.

The majority of households in the UK get their energy and gas from the mains, and the prices they pay are protected by the Ofgem energy price cap. The next price cap, in place from April to the end of June has already been confirmed, meaning energy prices will fall by around 7% for most UK households.

However, as those who use heating oil do not get their fuel from the mains, they will not enjoy the same degree of protection and are particularly vulnerable to market forces during an economic shock.

The government has been urged by some groups to support households reliant on heating oil and protect them from surging prices.

We look at why the price of heating oil is increasing, and what help could be available to households who will struggle to stomach the price hike.

Why are heating oil prices increasing?

When oil prices rise or fall, the price of heating oil soon follows suit.

In early March, the US and Israel’s strikes on Iran led to an escalation of conflict in the Middle East, where much of the world’s oil supply is sourced, and a large disruption to global oil supply lines.

War in the region makes transporting oil much riskier, as attacks from either side could target ships. Ships carrying oil are not passing through the Strait of Hormuz, through which around 20% of the world’s oil is transported, as the strait is just off the coast of Iran.

This has meant that the supply of crude oil has taken a huge hit and become much more constrained. However, demand for oil has remained the same, meaning that, due to the laws of supply and demand, prices for oil and its derivatives have increased sharply.

The impact of the war will not just be felt in the energy market. Experts have warned that hikes to energy prices may lead to increased inflation, which could lead the Bank of England to pause future interest rate cuts.

Will the government step in to help households?

While there is no immediate relief for households reliant on heating oil, reports indicate that the government is exploring options to make sure customers are being treated fairly.

Chancellor Rachel Reeves said on 9 March that she has asked Treasury officials to meet with MPs from the regions most affected by heating oil price hikes to explore potential “action we can take” to support struggling households.

Meanwhile, energy secretary Ed Miliband said that the government will “take all action necessary to protect households.”

In a letter to the chief executive of the UK and Ireland Fuel Distributors Association (UKIFDA), the industry body for suppliers of heating oil, Miliband warned suppliers that the government will not allow price gouging

He said the department has spoken to the Competition and Markets Authority (CMA) who will gather evidence on whether customers are being treated fairly in current market conditions.

He added: “Where there is evidence that consumers are being treated unfairly, we will act accordingly and ensure that the appropriate regulatory bodies are engaged.

“To be clear, our firm expectation is that pricing remains fair, transparent and fully justifiable, reflecting genuine market conditions.

“It is also essential that vulnerable households continue to receive appropriate support and prioritisation as set out under the Cold Weather Priority Scheme.”

What support is available if you can’t afford to buy heating oil?

If you are struggling to afford to warm your home after the hike in heating oil prices, you may be able to receive some support.

UKIFDA says that if your tank is running low, the best approach currently is to order your fuel as normal, but they add that if you are able to delay purchasing you may consider waiting to see if prices return to normal soon.

However, if you can’t afford to buy fuel – or may not be able to in the near future – and can prove it, you may be able to get some help through Citizens Advice.

Support may also be available through your local council, as some offer local grants or schemes for people who are reliant on heating oil.

More broadly, it is good practice to shop around for your heating oil to make sure you are getting the best deal. Citizens Advice says you should try to get at least three quotes from different suppliers so you can find the best option.

They add that it is also normally more expensive to get an urgent delivery of oil, so it is a good idea to plan your delivery well in advance. You may also get a better deal if you get one large delivery rather than multiple smaller deliveries.

If you are over 75 you should be getting priority deliveries if your supplier is a member of UKIFDA. If you don’t think this is the case, you should check with your supplier that you are on the “Cold Weather Priority Initiative”.