Oil prices surged above $100 a barrel on Monday for the first time since 2022, deepening fears that the war involving Iran could deliver a fresh energy shock to Britain through higher fuel costs, rising inflation and another jump in household bills later this year. Brent crude touched $119.50 before easing back, while wider market turmoil hit sterling, government bonds and equities as traders assessed the risk of a prolonged disruption to supplies moving through the Strait of Hormuz, one of the world’s most important energy chokepoints. (Reuters)
For the UK, the danger is not simply the headline oil price. Britain remains unusually exposed to swings in global gas markets because gas still plays a central role in how the country heats homes, generates electricity and sets marginal power prices. Reuters reported that wholesale British gas prices had jumped by around 70% in the space of a week as energy shipments through the Strait of Hormuz were halted and Qatar, a major liquefied natural gas producer, stopped production. Although only around 1% of Britain’s gas supply comes directly from Qatar, the global nature of the market means disruption abroad can still rapidly push up costs at home. Around 30% of Britain’s electricity comes from gas-fired power plants and more than 70% of homes use gas for heating. (Reuters)
That vulnerability is sharpened by the UK’s relatively small storage buffer. Reuters reported that Britain’s gas storage sites can hold roughly 12 days of demand, compared with about 90 days in Germany and more than 100 in France. That disparity has become central to the current anxiety over whether a foreign conflict could quickly feed into domestic economic pressure. The government has sought to calm those fears, saying in an official factsheet that “The UK’s gas supply will not be disrupted” and stressing that Britain benefits from “strong and diverse energy supplies”, including North Sea production, pipelines from Norway, interconnectors with continental Europe and three LNG terminals. The same factsheet said only about 1% of the UK’s gas supply in 2025 came from Qatar. (Reuters)
Even so, the current price shock is already being felt on British forecourts. RAC data showed average petrol prices rising from 132.83p a litre on 28 February to 136.53p by 6 March, while diesel climbed from 142.38p to 148.35p over the same period. RAC head of policy Simon Williams said: “Petrol has now increased by 3.7p to 136.53p a litre since Saturday, while diesel is up by 6p to a 16-month high of 148.35p. This has already pushed up the cost of filling a 55-litre family car with petrol by £2 and diesel by nearly £3.30 in less than a week.” He added that if crude prices remain elevated, “further forecourt rises will be inevitable.” (media.rac.co.uk)
The immediate effect for households is likely to come in stages. Drivers are already seeing higher pump prices, while domestic energy customers are partly shielded in the short term by Ofgem’s quarterly price cap. Ofgem said the cap for a typical dual-fuel household paying by direct debit will fall to £1,641 between 1 April and 30 June. But Reuters reported that the assessment window for the following quarter runs from 18 February to 18 May, meaning the current wholesale surge will be captured in the calculation for the July to September cap. Cornwall Insight said this week that it expected the cap to rise by about 10% in July, which would take a typical annual bill to around £1,801. (Ofgem)
Financial markets are already pricing in a broader economic hit. Reuters reported that sterling fell 0.81% to $1.331 on Monday, its biggest daily drop in over a month, as investors moved into the dollar and sold currencies seen as more exposed to imported energy inflation. Britain’s 10-year gilt yield rose sharply and traders swung from expecting interest-rate cuts earlier in the year to pricing in more than a 50% chance that the Bank of England may have to raise rates before 2026 is out. Susannah Streeter of Wealth Club told Reuters: “It’s been the biggest jump since the outbreak of the pandemic, and investors are bracing for an inflation crisis.” (Reuters)
That is why the latest surge has revived comparisons with earlier oil shocks, even if officials are stopping well short of predicting an exact repeat. Reuters reported on Monday that investors were increasingly discussing the risk of a 1970s-style stagflationary shock, in which higher energy prices feed inflation while undermining growth. The International Energy Agency itself was created after that decade’s oil crisis, and G7 governments are again discussing whether strategic reserves may need to be used if market disruption worsens. On Monday, however, ministers stopped short of releasing stockpiles immediately. French Finance Minister Roland Lescure said: “We are not there yet,” while the G7 said it stood ready to take “necessary measures” if required to support energy supply. (Reuters)
For Britain, the argument is not only about today’s shortages but about the structure of the energy system that leaves the country so sensitive to overseas conflict. In a parliamentary debate last week, ministers and MPs again stressed the continuing role of gas in the British economy, with figures cited in Hansard showing that about 40% of UK energy comes from gas and that 24 million homes are connected to the gas grid. The debate also recorded that 43% of gas used in the UK is produced in the North Sea basin, underlining both the value of domestic production and the reality that Britain still depends heavily on imported supply to make up the rest. (Hansard)
There is also a growing dispute over how reassuring the official message really is. The government’s factsheet insists supply will not be disrupted, but Reuters’ explainer makes clear that supply security and price security are not the same thing. Britain may continue to receive gas from Norway, domestic fields and LNG terminals, yet still pay far more for it when global markets tighten. That distinction matters because households and businesses do not experience geopolitical turmoil as an abstract question of molecules in a pipeline. They feel it in the cost of filling a car, heating a home, running a factory and buying food transported or produced with higher energy inputs. (GOV.UK)
That broader pass-through is one of the most serious risks if the conflict drags on. Higher gas prices affect not only domestic bills but electricity generation and industrial costs, while higher oil prices raise transport and logistics costs across the economy. Reuters cited Oxford Economics as saying UK inflation could be 0.4 percentage points higher if disruption in the Strait of Hormuz lasts up to two months. That may sound modest in isolation, but after years of energy-driven cost-of-living pressure it would be enough to sharpen political and financial pressure on the government, especially if ministers are again forced to consider expensive support packages for households. Reuters noted that the UK’s energy support during the 2022 to 2023 spike was estimated by Lloyds Bank economists at £52 billion. (Reuters)
For now, ministers are trying to strike a careful balance between reassurance and contingency planning. Rachel Reeves said Britain would support the release of emergency oil reserves if needed, while G7 ministers signalled they were prepared to act but wanted more analysis before intervening. In Washington, U.S. Energy Secretary Chris Wright described the market impact as temporary and “a small price” for security, saying there were no plans to target Iran’s oil or gas industry directly. Whether that optimism holds will depend less on official statements than on what happens next in the Gulf. If shipping disruption eases, prices may retreat quickly. If not, Britain’s exposure to global energy shocks is likely to become one of the central economic stories of the spring. (Reuters)
