Oil Above One Hundred Dollars: What the Iran War Means for Your Energy Bills

One week after the United States and Israel struck Iran, the economic consequences are arriving at speed. Iran has closed the Strait of Hormuz, the chokepoint for roughly a fifth of the world's oil and a significant share of its liquefied natural gas, and crude has risen above 100 dollars a barrel for the first time since 2022. President Trump has announced a reciprocal American naval blockade of the strait until Iran reopens it to all traffic, a move that cuts Iranian exports but does nothing to reopen the tap for everyone else.

Britain buys comparatively little oil directly from the Gulf, but that offers no protection. Oil and gas are priced on world markets: a barrel disrupted in the Gulf raises the price of every barrel everywhere, from Aberdeen to Abu Dhabi. And the strait matters beyond crude. A substantial slice of the world's liquefied natural gas trade passes through the same narrow channel, which at its tightest point is barely twenty miles across. The question for households is not whether this reaches them, but when, and how hard.

From the Gulf to the petrol pump

The fastest transmission is at the forecourt. Pump prices follow wholesale fuel costs, which follow crude, typically with a lag of a few weeks as stock bought at old prices is replaced by stock bought at new ones. If the strait remains closed, drivers should expect the numbers on the sign to creep upwards through March; if the conflict widens, expect them to jump rather than creep. Diesel tends to move fastest, which matters because diesel moves almost everything else, from supermarket lorries to farm machinery.

Household energy bills move more slowly, by design. Ofgem's price cap is reset quarterly and is based on wholesale gas and electricity costs observed over a window of months. A spike today therefore feeds into the cap with a delay: the worst of this shock, if it persists, would land in bills later in the year rather than next month. Gas matters as much as oil here. Britain competes with Asia for liquefied natural gas cargoes, and when Gulf supplies are trapped behind a closed strait, every buyer in every time zone pays more.

Then comes the second round: the cost of moving and making things. Freight, fertiliser, air fares and food all carry an energy component, which is why economists worry less about the first month of an oil shock than the third. After years in which inflation has been falling back towards the Bank of England's 2 per cent target, an energy driven rise would be an unwelcome turn for Threadneedle Street and for every household budget in the country.

What ministers and the regulator can, and cannot, do

The Government's toolbox is real but limited. It can cut or freeze fuel duty, as it has done repeatedly since 2022. It can join allies in releasing strategic oil stocks to calm the market. It can target support at the poorest households through the benefits system, as it did during the last energy crisis. What it cannot do is set the world price of oil. Every relief package is a choice about who bears a cost that the shock has already created: the taxpayer now, the bill payer later, or the motorist at the pump.

Ofgem's position is similar. The cap smooths prices and shields customers from the wildest daily swings, but it passes through sustained wholesale increases in the end. Neither the regulator nor ministers can repeal the arithmetic: a fifth of the world's oil travels through a strait that is currently closed, and the market prices that fact every second of every day.

The practical advice is unglamorous. If you drive, budget for fuel to cost more this spring. If your fixed energy tariff is ending, compare deals sooner rather than later, because the market is repricing by the week. And treat any forecast, including this one, with humility: the war is seven days old, but the bills it generates will be with us far longer.