The US and Israeli strikes on Iran, coupled with Iran’s closure of the Strait of Hormuz and retaliation against neighbouring states, is provoking dramatic rises in oil and gas prices. Most extreme of all so far in the UK seems to be the rise in domestic heating oil (or kerosene).
On January 29 I bought 1,000 litres of heating oil for £598.82. Today the cheapest quotation offered on the website of Boiler Juice, which acts as an intermediary between oil suppliers and consumers, was £1,484.99, a staggering rise of 148%. Judging by the price chart on Boiler Juice’s website, virtually all of this increase has taken place in the five days since the February 28 attack on Iran.
The Dutch TTF natural gas price, the main European benchmark, is up by 56% since just before the attack on Iran. Qatar supplies 20% of the world’s liquefied natural gas and QatarEnergy has suspended production following Iran strikes. According to the European Commission, 29.5% of EU final energy consumption is supplied by gas. About three quarters of UK households use gas. Unless the spike in gas prices eases, the spending power of Europe’s consumers will suffer and economic growth will be lower.
Crude oil prices are also up, though by far less than gas. The Brent Crude oil price, as I write, is $81.4 per barrel, a rise of 13.4% since February 27 and of 22.4% since February 5. Fear that an attack would take place had already pushed up the price.
UK diesel and petrol prices do not yet appear to have reacted significantly to the conflict. The RAC Foundation puts the average UK petrol price yesterday, March 4, at 134.5 pence per litre, compared to 132.9 pence per litre on February 26, a rise of 1.2%. Diesel prices have risen slightly more, by 1.5%, to 142.4 pence per litre over the same period. As crude oil prices are rising fast, it is certain that in coming days and weeks motorists will have to pay more. For suppliers of food and all other freight transport, too, that means more cost. The inflation rate is going to rise.
How much harm will all this do? For any unfortunate people needing heating oil urgently the harm is already large: hundreds of pounds more to pay than they expected. And some may have difficulty obtaining kerosene at all. I rang a local supplier and they did not want to offer a price.
But the more serious damage to consumers, companies and economic growth will depend on how long these price spikes last, and how high they rise. But when the offensive will end is uncertain. Donald Trump has not set out exactly what he aims to achieve. His reassurances on Tuesday that energy supplies from the Middle East would not be affected have already been proven entirely hollow.
US consumers look, so far, to be less affected by energy price spikes than European ones. The US is self-sufficient and a net exporter of oil and gas. Asia, by contrast, is dependent on Middle East supplies and will suffer significant harm from this crisis. But the impact on the US is nonetheless sufficiently large to have provoked sizeable falls in stock markets and in US government Treasury bonds.
Iran’s regime is repugnant. So, too, is the Trump administration’s crowing over US military power and the death and destruction it can inflict. But it is rising prices and bombing markets that are more likely to make Trump’s war more unpopular at home. And, just as with his “Liberation Day” import tariff increases in April last year, it might be plunging markets that make Trump seek a way out of another mess of his own making.
