Britons are braced for higher prices at the pumps after a rise in oil prices caused by the conflict between Israel and Iran in recent days.
Oil prices climbed in early trading on Monday as traders worried about the risks of a broader regional military conflict, which could disrupt supplies.
Iran is a big oil producer, and accounts for about 3% of global supplies.
As the conflict entered its fourth day, Brent crude rose by 0.5% in early trading, pushing towards $75 a barrel, while US crude rose by 0.7% to $73.42.
But Brent later fell 3.4% at $71.70 a barrel amid reports that Iran is seeking talks with the US and Israel to end hostilities.
Tehran has asked Qatar, Saudi Arabia and Oman to press the US president, Donald Trump, to use his influence on Israel to agree to an immediate ceasefire with Iran, Reuters reported.
Crude prices jumped by more than 13% on Friday to their highest levels since January, and closed 7% higher for both benchmarks, after Israel hit more than 100 targets in Iran, including nuclear facilities and missile sites, and Iran responded with its own missile strikes on Israel.
Thomas Pugh, an economist at the consulting firm RSM UK, said: “Just as tensions and uncertainty around global trade and tariffs seemed to be easing with a deal between the US and China on tariffs, the Israel-Iran escalation represents a new source of geopolitical tension.
“The main way this will impact UK businesses and the economy is through higher oil and natural gas prices.”
He noted that oil prices had risen by about $10 a barrel in the past week, which is likely to result in a 5p increase in petrol and diesel prices at the pump over the “next couple of months”.
Petrol rose by a tenth of a penny, reaching an average of 132.1p a litre on Monday, according to the AA. If sustained, this increase would end three and a half months of falling petrol prices, starting from an average of 139.8p a litre in early March.
Wholesale petrol costs are above where they were in April and May but still way down on levels seen in the first quarter of this year. Aside from the oil price, another big factor that influences prices at UK pumps is US demand for gasoline during the summer motoring season, the AA said.
The sell-off in stock markets has been limited, so far. In London, the FTSE 100 gained 0.4%. Shares in the oil companies Shell and BP climbed by more than 1% before falling back. Stock markets in Germany and France rose by 0.7% and 0.9%.
“The market currently anticipates a limited conflict, though there is little indication that hostilities will end quickly,” said Jochen Stanzl, the chief market analyst at CMC Markets. “It is expected that fighting will continue unabated this week, albeit on a limited scale.”
Mohamed El-Erian, an economic adviser to the insurance giant Allianz, said the conflict risked causing slower global growth, increased inflationary pressure, reduced “policy flexibility” for central banks, and “further gradual erosion of the global order”.
James Hosie, an analyst at Shore Capital, said the rise in Brent crude, to almost $75 a barrel, could be temporary, if the direct impact on Iran’s oil facilities remained limited.
Over the weekend, airstrikes by Israel targeted energy assets including the Shahran oil depot and Shahr Rey refinery close to Tehran, and the South Pars gas field. This raises the risk of a direct impact on Iran’s 2m barrels of oil exports a day.
There are fears that Iran’s next response could target regional energy supplies by disrupting tanker movements in the strait of Hormuz – the waterway off the south coast of the country through which 20% of global oil supplies and 20% of liquefied natural gas flow.
This would mark a significant escalation of the conflict, as it would affect exports from Saudi Arabia and other Middle Eastern oil and liquefied natural gas producers, along with their customers, particularly China, Hosie said.
However, he said other members of the Opec oil cartel and allies, notably Saudi Arabia, could raise oil production to offset any disruption to Iranian exports, and others such as US shale producers could also step in.
The price of oil had been well below the $80.53 a barrel average recorded last year before the conflict, with prices at the pump easing.
