Relief at the pump may arrive more slowly than the shock did
When the United States and Iran signed a peace agreement on June 18th, they did not merely end a conflict — they attempted to reopen the artery through which a third of the world's seaborne oil flows. The Strait of Hormuz had been closed since February, and in that closure lay the story of 22 extra pence per litre at British pumps, doubled gas bills, and an inflation trajectory knocked off course. Prices have begun to ease, but the ancient lesson holds: the wound heals more slowly than it was inflicted, and the economic consequences of war do not dissolve with the signing of peace.
- A four-month conflict between the US, Israel, and Iran effectively shut the world's most critical oil corridor, sending petrol, gas, and jet fuel prices surging to levels that squeezed households and industries across the globe.
- The peace deal has unlocked wholesale energy markets — oil, gas, and jet fuel prices are all retreating — but the gap between falling wholesale costs and what consumers actually pay remains stubbornly wide.
- Thirty-three million UK households face a 13 percent rise in energy bills in July regardless of the peace deal, because Ofgem locked in the price cap before wholesale gas prices began their descent.
- Airlines have enough jet fuel to meet summer demand, but fares are unlikely to return to pre-war levels soon, as jet fuel prices remain more than 20 percent above where they stood before the conflict began.
- Central banks, including the Bank of England holding at 3.75 percent, are refusing to cut interest rates until the inflationary aftershock of the war fully clears — pushing expected relief for borrowers potentially into 2027.
On the day the peace deal was signed, British drivers were paying 154.72 pence per litre of petrol — more than 22 pence above what they had paid before the war erupted in February. The conflict had closed the Strait of Hormuz, the narrow passage through which roughly a third of all seaborne traded oil moves, and the economic shockwave had been immediate. In the United States, gasoline climbed from $2.94 to $4.05 per gallon; diesel from $3.81 to $5.06. Wholesale prices have begun falling as peace negotiations progressed, but the RAC's Simon Williams cautioned that the descent is likely to be more gradual than the ascent.
For households heating their homes with gas, the picture is more complicated. UK gas prices had nearly doubled at the conflict's peak, and while they have since retreated, the relief will not reach bills in time. Ofgem has already locked in a 13 percent rise in the household energy price cap for July — an extra £221 per year for the average home across England, Wales, and Scotland — and that figure cannot be revised before it takes effect, regardless of what wholesale markets do between now and then.
Airlines face their own version of the same problem. Jet fuel, half of which Europe sources from the Gulf, soared from around $784 per tonne to $1,838 at the war's height. It has since fallen to roughly $967 — a meaningful drop, but still well above pre-war levels. Analysts expect sufficient supply for summer travel, yet elevated fuel costs mean airfares are unlikely to return to pre-conflict prices anytime soon.
The deeper shadow over all of this is inflation. Before the war, UK inflation had been falling toward the Bank of England's 2 percent target. The conflict disrupted that trajectory, and the damage persists. The Bank held its interest rate at 3.75 percent this week — its fourth consecutive pause — with Governor Andrew Bailey warning of "inflationary pressure in the pipeline" even as oil prices ease. Central banks worldwide are holding steady, and some analysts now expect rate cuts may not arrive until 2027. The Strait of Hormuz has reopened, but the economic consequences of the war that closed it are far from resolved.
On a Thursday in mid-June, the price of petrol at British pumps stood at 154.72 pence per litre. Four months earlier, before the war between the US, Israel, and Iran erupted in February, that same litre had cost 132.05 pence. The difference—more than 22 pence—sat in the tank of every driver who filled up during those months of conflict. Now, with Iran and the United States having signed a peace agreement on June 18th aimed at reopening the Strait of Hormuz, the global shipping corridor that had been effectively closed, fuel prices have begun their descent. But the relief at the pump may arrive more slowly than the shock did.
The war's economic shockwave rippled outward from a single chokepoint. The Middle East supplies roughly a quarter of the world's oil and gas, and when the Strait of Hormuz—through which roughly a third of all seaborne traded oil passes—closed, the disruption was immediate and severe. Motor fuel prices spiked. In the United States, gasoline climbed from $2.94 per gallon to $4.05, while diesel jumped from $3.81 to $5.06. The wholesale prices that feed into what consumers pay have begun falling in recent weeks as peace negotiations progressed, but Simon Williams, head of policy at the RAC, offered a cautionary note: the question is not whether prices will fall, but how quickly. The rise through March and April had been swift and painful. The decline, he suggested, might be more gradual.
For households relying on gas for heating and hot water, the picture is more complicated still. UK gas prices had nearly doubled at the conflict's start, climbing from below 80 pence per therm to around 157 pence by mid-March. They have since retreated to 98 pence per therm. Yet the energy consultancy Cornwall Insight warned against optimism. The reason is bureaucratic but immovable: Ofgem, the UK energy regulator, has already locked in the household energy price cap for July. That cap, which covers 33 million households across England, Wales, and Scotland, will rise by 13 percent—an additional £221 per year on average bills. The cap cannot be adjusted before then, regardless of what happens to wholesale gas prices. The relief, in other words, will not arrive in time for millions of households facing higher bills next month.
Airlines face a different calculus. The Gulf supplies roughly half of Europe's jet fuel, and when the war began, prices for that fuel soared from about $784 per tonne to $1,838. The prospect of shortages and grounded flights sent shudders through the industry. In recent weeks, jet fuel prices have fallen to around $967 per tonne—a significant drop, but still well above pre-war levels. Amaar Khan, a jet fuel specialist at Argus Media, expects European airlines will have sufficient fuel to meet summer demand and beyond. But he also expects those prices to remain elevated for much of the year, which means airfares are unlikely to return to their pre-conflict cost anytime soon.
The broader economic picture is shadowed by inflation. Before the war, inflation in the UK and globally had been falling. In February, UK inflation stood at 3 percent, and the Bank of England had suggested it might reach its 2 percent target by April. The conflict disrupted that trajectory. Energy prices, the primary driver of that disruption, have begun to ease, but the damage to the inflation outlook persists. Charlotte O'Leary, an economist at the National Institute of Economic and Social Research, expects a "sizeable" upward impact on inflation when Ofgem raises the energy price cap in July. That inflationary pressure has consequences for interest rates, the tool central banks use to control price growth and manage borrowing costs.
The Bank of England held its interest rate at 3.75 percent this week—the fourth consecutive meeting without a change—citing the lingering uncertainty created by the conflict. Andrew Bailey, the Bank's governor, acknowledged that recent drops in oil prices were encouraging, but warned that the high energy prices during the war had left "inflationary pressure in the pipeline." Central banks around the world have adopted a similar posture: holding rates steady while waiting for clarity. Interest rates are widely expected to remain on hold for the rest of this year, with some analysts predicting cuts might not arrive until 2027. The peace deal has opened the Strait of Hormuz, but it has not yet closed the door on the economic consequences of the war that preceded it.
Notable Quotes
The big question is how fast will this happen, and whether the fall in pump prices happens as swiftly as the rise drivers had to endure through March and April did.— Simon Williams, head of policy at the RAC
Recent drops in oil prices were encouraging, but high energy prices during the war had still left inflationary pressure in the pipeline.— Andrew Bailey, Governor of the Bank of England
The Hearth Conversation Another angle on the story
The peace deal sounds like it should be good news for everyone's wallet. Why isn't it?
Because prices don't move like light switches. Wholesale oil prices have started falling, yes, but that takes weeks or months to filter down to what you pay at the pump. Meanwhile, energy bills are locked in by regulation—they're already set to jump 13 percent in July, no matter what happens to gas prices between now and then.
So people will see their heating bills go up even as the crisis ends?
Exactly. The energy price cap was set before the peace deal. Ofgem can't change it. Thirty-three million households will pay more starting next month, even though the underlying reason for the increase—the war—is supposedly over.
What about petrol? Surely that will come down quickly?
It's already starting to, but the RAC is cautious. Prices rose sharply in March and April—that happened fast. But falling prices tend to be slower. We're still 22 pence per litre above where we were before the war. It could take months to get back there, if we get back at all.
And the airlines?
Jet fuel is down from its peak, but still nearly double the pre-war price. Airlines will have enough fuel for summer, but tickets won't get cheaper anytime soon. The Gulf supplies half of Europe's jet fuel. That supply line is reopening, but the price memory lingers.
What's keeping interest rates high, then?
Inflation. The war pushed energy prices up, and that pushed inflation up. Even though energy prices are falling now, that inflationary pressure is still in the system. Central banks are nervous about cutting rates too soon and letting prices rise again. So they're waiting, watching.
When will they cut?
Not this year. Maybe next year, maybe 2027. The peace deal is real, but its economic effects are still unfolding. Central banks are in no hurry.