What do rising oil prices mean for you?

Growth of crude oil prices, Oil barrel black liquid Petroleum — (Image credit: Diego Antonio Maravilla Ruano via Getty Images)

Energy and petrol prices are expected to rise, alongside a spike in inflation, as the oil price continues to surge amid the long-feared conflict in the Middle East.

Combined US-Israeli air strikes on Iran on 28 February, followed by the killing of the country’s supreme leader Ayatollah Ali Khamenei, led to an outbreak of wider hostilities throughout the region.

Much of the world’s oil is sourced from the Middle East, and the conflict in the region threatens to disrupt global supply. That has caused oil prices to spike in the short term.

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“Energy prices are the main channel through which geopolitical events can feed into inflation and impact growth and central bank policy,” said John Husselbee, head of multi-asset at fund manager Liontrust.

Why have oil prices spiked following the outbreak of the conflict – and what could it mean for UK inflation, interest rates and what you pay at the pump?

How the conflict in the Middle East has impacted oil prices

Futures prices for Brent Crude oil opened at $78.37 per barrel on Monday 2 March, 8.1% higher compared to their close the previous Friday (27 February), and rose to as high as $80.26 during the day.

Besides higher global instability, one of the specific risks the conflict poses to the global economy is the potential closure of the Strait of Hormuz, a narrow sea lane between the Persian Gulf and the Gulf of Oman through which around one fifth of the world’s oil passes.

This appears to have already effectively happened. Iran’s Revolutionary Guards have reportedly stated that shipping is restricted through the strait, and reportedly claimed to have struck three tankers from the UK and the US on Sunday.

“From a global perspective, pretty much everything hinges on the Strait of Hormuz and the implications of any disruption to global energy flows,” said John Wyn Evans, head of market analysis at wealth manager Rathbones. “Oil prices already reflect a sizeable risk premium, with current levels implying an expectation of a limited but meaningful interruption to shipping, but analysts note that the impact would worsen quickly if the closure were protracted.”

How does the oil price affect the price of petrol?

One of the most direct consequences of higher oil prices is their impact on what you pay at the pump, given that oil is the key ingredient in petrol and diesel.

However, the impact is not as great as you might think (if you live and drive in the UK). That is because more than half the price of a litre of petrol is tax. Fuel duty accounts for around two fifths of what you pay at the pump, while VAT accounts for a further 17%.

One surprising benefit of being taxed so heavily on our petrol is that pump prices aren’t quite as sensitive to oil price increases as they are in other countries.

The price of the oil itself only accounts for 26-29% of the price of a litre of petrol in the UK. In theory, that means a 10% rise in global oil prices might increase the price of petrol by up to 3% (though it isn’t necessarily that straightforward in reality).

Fuel prices and EV charging are displayed by the roadside at a BP forecourt in Dover, UK, on Friday, Oct. 17, 2025 — Rising oil prices could push UK petrol prices higher, though the impact is mitigated by the proportion of fuel prices accounted for by taxes.

Could higher oil prices increase inflation?

You don’t just feel the impact of higher oil prices at the pump. Any business or process that consumes energy as an input could become more expensive in the event of a sustained increase in oil prices, and that raises the prospect of higher inflation.

“Higher oil prices exert upward pressure on the input costs for firms producing non-oil goods and services, and so some of this will also be passed on to consumers in the form of higher prices,” said Edward Allenby, senior economist at advisory firm Oxford Economics. “Additionally, European gas prices have also risen sharply over the weekend, and this could potentially have a larger impact on headline inflation than the increase in oil prices.”

The duration of the conflict and any supply disruption is going to have a large bearing on how long oil prices stay high for, and in turn how that impacts inflation.

“It is important to remember… that at this stage we are dealing with markets repricing uncertainty rather than an economic shock and its consequences,” said Husselbee.

Could higher oil prices increase your energy bill?

The duration of the conflict could also have a bearing on the next Ofgem energy price cap.

“Ofgem have already published their price cap for Q2, so any upward pressure would only start to come through from July,” said Allenby. “Given wholesale prices now make up less than half of Ofgem’s overall price cap, this limits the magnitude of the passthrough of higher gas prices to consumer prices.”

Allenby added that the impact on the Q3 price cap will also depend on how long the spike in gas prices persists: “A short temporary spike will have a far smaller impact than an increase of the same magnitude that persists throughout the observation window.”

What higher oil prices could mean in the long term

If the conflict doesn’t resolve quickly, then there could be other lasting impacts to your money.

For example, if the inflationary impact described above lingers then it will feed into the Bank of England’s decisionmaking over interest rates.

A sustained inflationary uptick would spell “a major headache for both policymakers and consumers, potentially disrupting the plan for more UK rate cuts”, said Chris Beauchamp, chief market analyst at investing platform IG.

A particularly sharp oil supply crisis could lead to a global slowdown in economic activity. “In the risk scenario of a global oil shock, the effects would include an increase in inflation and a decrease in various activity measures, notably industrial production where energy prices are an important input,” said Samy Chaar, chief economist and CIO Switzerland at Lombard Odier.

How to protect your finances from higher oil prices

While there is little you can do to protect yourself from the prospect of paying more for petrol at the pump (besides, perhaps, buying an electric car), there are some steps you can take to protect your portfolio from any potential oil-related inflation and the wider impacts of the conflict.

Gold is often viewed as a hedge against inflation, so adding the yellow metal to your portfolio might be one potential starting point if you haven’t already. The price of gold rose to near all-time highs following the outbreak of the conflict, given its perception as a safe haven.

Liontrust’s Husselbee stresses the importance of a diversified multi-asset portfolio with differentiated exposure across regions, sectors and asset classes – though he also cautions discipline and the importance of not making knee-jerk changes to your investing strategy in response to headlines.

Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.

Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.

Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books.