A US-Iran deal aimed at ending the war could start easing some of the price pressures that have hit drivers, households and airlines, but the relief is likely to be uneven and may take time to show up in bills.
The agreement, signed on 18 June, is expected to reopen the Strait of Hormuz, a critical oil and gas shipping route whose closure after the outbreak of the US-Israel war with Iran in February helped lift energy and transport costs. The durability of the deal remains uncertain, however, because negotiations over some of the most difficult issues, including Iran’s nuclear programme, have been pushed back for 60 days.
Fuel prices are moving first
Motor fuel is the most visible place consumers may notice a change. UK pump prices have begun drifting lower as hopes for a deal pulled global oil and wholesale petrol prices down, but they remain well above pre-war levels.
RAC Fuel Watch figures showed petrol in the UK averaging 154.72p a litre as of Thursday, while diesel averaged 174.30p. Nearly four months earlier, petrol was 132.05p a litre and diesel was 141.6p. In the US, average gasoline has fallen back from more than $4.50 a gallon last month to $3.97, but remains above the $2.98 level seen before the war; diesel has risen from $3.76 to $5.09 over the same period.
Simon Williams, head of policy at the RAC, said lower global oil and wholesale petrol prices should eventually feed through to forecourts if the trend holds. The question for drivers is whether pump prices fall as quickly as they rose during March and April.
Home energy and flights may lag
Lower gas prices do not immediately mean lower heating bills. The benchmark UK gas price was below 80p a therm before the war, rose to about 157p by 19 March, and has since fallen to around 98p. Cornwall Insight has cautioned against assuming prices will quickly return to pre-conflict levels, and Ofgem has already set its July price cap: the average household bill is due to rise by 13%, or £221 a year, for 33 million households in England, Wales and Scotland.
Air fares also may not normalise quickly. Europe gets around half its jet fuel from the Gulf, and jet fuel prices jumped from about $784 a tonne to $1,838 after the war began. They have since fallen sharply to around $967, but Amaar Khan, a jet fuel specialist at Argus Media, expects prices to remain above pre-war levels for much of this year, even as European airlines have enough fuel to meet summer demand.
Inflation keeps pressure on rates
The energy shock has complicated the path for inflation. UK inflation fell to 3% in February, before climbing to 3.3% in March and settling at 2.8% in April and May. In the US, inflation rose from 2.4% in February to 4.2% in May, while in the European Union it rose from 2.1% to 3.3% over the same period.
That helps explain why central banks have been cautious. The Bank of England held rates at 3.75% for a fourth consecutive meeting this week, with governor Andrew Bailey saying recent oil-price falls were “encouraging” but that high energy prices during the war had left “inflationary pressure in the pipeline.” The US Federal Reserve also held rates, while the European Central Bank raised its rate to 2.25%.
For consumers, the most immediate benefit is likely to be at the pump. Broader relief for household bills, air fares and borrowing costs depends on whether the Strait of Hormuz stays open, energy markets keep easing and postponed negotiations do not revive the shock.
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