What do rising oil prices mean for you?

The war in Iran is keeping the price of oil incredibly high. The commodity reached a recent peak of $110 for a barrel of Brent crude on 4 May, potentially meaning higher prices for your petrol, food, and even your mortgage.

While prices calmed down through the week, reaching around $100 a barrel on 8 May, they remain far higher than before the war as the supply of the vital material is still heavily constrained.

The Iran war has led to increased uncertainty for the oil trade as it has become less safe to extract and ship oil from the Middle East to the rest of the world.

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The threat of missile strikes from either the US or Iran means there is a highly increased level of risk involved in the trade.

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On top of this, the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil is transported, has remained shut since the war began on 28 February.

As supply has been disrupted while demand has remained the same, the price of the commodity has soared, rising from around $73 on 27 February to $100 on 8 May, an increase of nearly 37%.

One of the clearest consequences of this has been on prices at the pump but, as oil is vital in the manufacturing process of many goods we consume every day, a rise in the price of oil has led to a general increase in inflation.

The latest data from the Office for National Statistics (ONS) showed inflation jumped to 3.3% in the year to March, an increase of 0.3 percentage points compared to the year to February.

With inflation on the rise, households will start to see their budgets stretch and it could mean their savings are eroding in real terms if inflation is higher than their interest rate.

We look at why oil prices are rising and what it could mean for the UK economy, interest rates and fuel prices.

Why the conflict in the Middle East has impacted oil prices

There are two key reasons why the price of oil has increased due to the war.

The first is that the conflict is bad for business. A great deal of the world’s oil is extracted from countries near Iran and war in the region means it becomes much more risky to continue normal operations.

In the first days of the war this was made very clear, as Iran fired retaliatory missile strikes on many countries in the Middle East, including the United Arab Emirates, Oman, and Cyprus, among others.

The second is that Iran (and later the US) was able to halt traffic through the Strait of Hormuz and hurt the world’s oil supply by effectively blocking 20% of it from being transported and stranding oil tankers in the Persian Gulf.

While the oil supply has reduced, the demand has remained the same, meaning the price of oil has increased.

But it’s not just oil that has had its supply constrained thanks to the war. Other goods are also impacted.

One example is fertiliser – around 30% of the world’s supply is shipped through the strait. Like in the case of oil, lower supply and steady demand have meant fertiliser prices have increased, which could lead to increased food prices later on.

Where prices go next will largely depend on how long shipping will be disrupted for.

How does the oil price affect the price of petrol?

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

Before the conflict began, the average price of a litre of petrol was 133.8p (142.3p for diesel).

But between 28 February and 8 May, the average price of a litre of petrol has increased by 24.3p, while diesel has increased by 46.5p, according to RAC Fuel Watch.

That means the average price of a litre of petrol is now 157.6p (187.9 for diesel). That is a significant increase, but it does not exactly mirror the extent that oil prices have risen in the same period.

This is because more than half the price of a litre of petrol is tax. Fuel duty accounts for around 34% of what you pay at the pump, while VAT accounts for a further 17%.

The price of the oil itself only accounts for 34% 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 around 3% or 4% (though it isn’t necessarily that straightforward in reality).

Could higher oil prices increase inflation?

While petrol and diesel prices are some of the fastest to react to the increased price of oil, that does not mean they are the only costs that will increase.

Oil is used in the manufacturing process of many goods we consume each day. This includes goods as varied as plastic, crayons, shoes, backpacks, iPhones, pillows, and much more.

With oil being more expensive, the overall level of prices in the UK is also higher.

The latest data from the ONS showed that inflation was 3.3% in March, and most analysts estimate that price growth will continue to increase.

Economists at the Bank of England think inflation could reach a peak of around 3.5% in the third quarter of 2026.

Much of this increase will come from rising energy prices. These increased energy costs will not only affect households, but also businesses. Firms will likely hike their prices to make up for increased energy costs.

Experts are also warning that the inflation associated with the impact of the war poses a threat to the UK economy.

The International Monetary Fund gave the UK the biggest growth downgrade of any country in the G7 when it published its latest economic outlook, now anticipating the economy to grow by just 0.8% this year.

Meanwhile, with inflation expected to rise again, most economists agree that it will be quite some time before we see the Bank of England cutting interest rates again.

Indeed, the market is currently pricing in interest rate hikes this year, though some economists say that while this is certainly much more of a possibility, it is more likely that the central bank will freeze rates for the foreseeable future.

Read more on the inflation forecast for 2026 in our guide.

Could higher oil prices increase your energy bill?

The conflict is expected to have a significant impact on the next Ofgem energy price cap.

Ofgem determines the price cap by working out the average wholesale price of energy in a three month period, and the observation period for the July price cap will include the war and its consequences on energy prices.

That means that even if the ceasefire lasts and a lasting peace is achieved, much of the damage to energy prices is already baked into the next price cap.

As such, the July to September price cap is expected to reach £1,836 per year – an increase of more than 12%, or around £195 per year, when compared to the current level in place between April and June, according to energy consultancy Cornwall Insight.