Iran War Triggers Fuel Price Surge and Mortgage Rate Increases in UK
The ongoing conflict in the Middle East has escalated economic pressures on the United Kingdom, with fuel prices breaking the 150p per litre barrier and mortgage costs climbing toward 5%. The turmoil, stemming from missile attacks by the US and Israel on Iran, has wiped nearly £30 billion from UK share prices amid a global stock market rout on Monday.
Fuel Prices Skyrocket as Oil Costs Soar
Oil prices spiked to a four-year high of nearly $119 a barrel in early trading, driven by supply disruptions including Iran's blockade of the Strait of Hormuz, a crucial shipping route for a fifth of the world's oil. Although hopes of released oil reserves eased prices slightly, they remained above $100 by mid-morning. This surge is directly impacting UK drivers, with the RAC reporting diesel prices rising from an average of 148.35p per litre on Friday to 150.97p on Sunday, and warning of potential increases to almost 180p. Unleaded petrol has also climbed, reaching 137.51p per litre on Sunday, up 4.68p since February 28.
Simon Williams, head of policy at the RAC, stated: "Average petrol and diesel prices have rocketed in the last week and are unfortunately likely to keep on rising. Unleaded could reach 140p soon, while diesel may climb to at least 160p per litre. With oil sustained at $100, petrol could approach 150p—a price not seen since June 2024—and diesel could hit almost 180p, a three-year high." He advised drivers to shop around for the best prices using apps and adopt fuel-efficient driving habits.
Edmund King, AA president, added: "As we predicted, the longer this conflict continues, the more it affects oil costs. Drivers should consider cutting non-essential journeys and adjusting their driving style to conserve fuel, especially with warmer weather aiding efficiency." He noted that price disparities at forecourts mean using tools like the AA App or government fuel finder can help save money.
Mortgage Costs Rise Amid Economic Uncertainty
The conflict's fallout has also hit the housing market, with fixed-rate mortgage costs increasing sharply. According to Moneyfacts, the average two-year fixed residential mortgage rate has risen to 4.87% from 4.84% on Friday, while the five-year fixed rate is now 4.98%, up from 4.96%. These increases are linked to swap rates, which have jumped due to the crisis, threatening to push inflation higher and delay potential Bank of England rate cuts.
Riz Malik, independent financial adviser at R3 Wealth, commented: "The spike in oil prices is disastrous for global economies. Unless this conflict ends quickly, inflation will spike, and interest rate increases will be priced in. Donald Trump's actions are damaging the UK economy and costing households money."
Global Economic Impact and Government Response
The war has spread across the Middle East, with Iran targeting energy infrastructure and disrupting oil production. Iraqi oil output has fallen by 70% to 1.3 million barrels per day, and Kuwait has begun cutting production. Globally, about £770 billion has been slashed from stock markets since Sunday, threatening pension pots and investments. The FTSE 100 dropped 120 points to 10,164 by mid-morning, extending losses from Asia into Europe.
Richard Hunter, head of markets at Interactive Investor, warned: "The mood is darkening among investors as the possibility of an extended conflict increases. With the Strait of Hormuz closed and production cuts from Kuwait and Iraq, the supply shock could lead to a global economic slowdown, stagflation, or even recession."
In response, Chancellor Rachel Reeves is set to attend an emergency meeting of G7 finance ministers to discuss a coordinated release of petroleum reserves by the International Energy Agency. This aims to tackle the oil price surge and mitigate economic damage. US Senate Democratic Leader Chuck Schumer has also called on President Trump to release oil from the Strategic Petroleum Reserve to stabilize markets.
Susannah Streeter, chief investment strategist at Wealth Club, noted: "Panic has hit equity markets after oil prices rocketed due to fears of a big squeeze in global supplies." Chris Beauchamp, chief market analyst at IG, added that investors have woken up to an oil crisis, with prices crossing the $100 mark as expected after the Hormuz closure.
The conflict leaves consumers and businesses worldwide facing prolonged higher fuel prices, even if it ends quickly, due to damaged facilities and disrupted logistics. Qatar's energy minister Saad al-Kaabi warned the war could "bring down the economies of the world," predicting Gulf energy exporters might halt production within days, further exacerbating the crisis.
