Immediate, but temporary, relief. That's the initial economic response to news of a two-week ceasefire: stock markets across the globe rallied, while the price of crude oil plunged. But there is less optimism over how much this will feed through to people's finances, with fears long-lasting damage has already been set in motion.
The last month has seen ships carrying oil, liquid natural gas and fertiliser effectively blocked from passing through the Strait of Hormuz, while significant damage to facilities in the Gulf has halted production. Even if the ceasefire holds and a peace deal is reached in time, analysts estimate it will take months to restart production and get supplies back to normal. Despite today's plunging crude oil price, it remains higher than pre-war levels and drivers should not expect a significant drop in costs at the pump soon, says the RAC.
Its head of policy Simon Williams says there is still huge uncertainty for drivers, and their best hope is for pump prices to stop rising in the coming days. But he says some smaller independent forecourts – which buy oil as it costs on the day rather than in advance at a set price – may be quicker to pass on reductions. "Much will depend on the stability of the ceasefire, whether oil shipments can move freely through the Strait of Hormuz, and the longer‑term impact on oil production across the Gulf," he says.
He adds a sustained lower price – over several weeks – is needed to meaningfully lower wholesale fuel costs. Rachel Winter, from the wealth management company Killik & Co, says it is difficult to predict how quickly costs at the pump might fall. "I would expect it to take at least a few weeks, if not a few months," she told BBC Radio 4's Today Programme.
Meanwhile, jet fuel is roughly double its pre-war levels. Willie Walsh, the boss of the International Air Transport Association (IATA), says even if traffic through the waterway resumes now, it will take months for supplies to reach the level they need to be at. Passengers should expect higher ticket prices in the meantime, he says.
Some airlines have already hiked fares, while some have cut routes. Even if jet fuel were able to flow through the strait, it still needs refining – and some facilities have been damaged, Winter adds. Alan Gelder, senior vice-president of Refining, Chemicals and Oil Markets for energy analysts Wood Mackenzie, says the whole supply chain needs to return to normal, with ships getting to the right place and refineries resuming operation.
That'll take "weeks, not days", he believes. A third of the world's fertiliser usually passes through the Strait of Hormuz, and consequently prices have shot up in recent weeks. It has already become more expensive to transport food across the UK, and for farmers to operate agricultural machinery powered by increasingly expensive diesel, while crop growers who use energy to warm their greenhouses will be facing hikes when the energy price cap resets in July.
The Food and Drink Federation, which represents thousands of UK manufacturers, says the ceasefire hasn't ended the "long‑term uncertainty". Recovery to supply chains and energy infrastructure in the Gulf is expected to take between six months and a year, says Dr Liliana Danila, its chief economist. "This means manufacturers will continue to feel the impact of supply chain disruptions for oil, gas, fertiliser, packaging materials and essential cleaning chemicals, keeping costs under strain for months to come." Even if the conflict ends within the next two weeks, it expects UK food inflation to reach at least 9% before the end of the year.
So far, households under Ofgem's energy price cap have been shielded from the spike in wholesale energy prices. The cap resets for three months in July, and we are more than halfway through the window the regulator uses to calculate the new price. Experts have been expecting a big jump at this point.
The government has promised support based on household income, but hinted this might not come until autumn. Dr Craig Lowrey, principal consultant at Cornwall Insight, says a ceasefire eases some of the immediate pressure on gas markets but "does not wipe the slate clean". If the strait opens and stays open this will ease prices and be reflected in the July price cap, he says, but adds: "Unless prices fall well below where they were before the conflict, the wholesale price rises seen through March and early April will still feed through to bills." Lars Jensen from Vespucci Maritime says companies will want reassurances on how vessels can transit safely, and he doesn't believe the two-week pause will be enough to restore trust.
"We should see an increase in exiting vessels," he told Today. "We will likely also begin to see a trickle of vessels going into the Gulf, but those two will not be of the same magnitude." Aside from movement through the strait, Lowrey says damage to gas infrastructure in Qatar will take years to rebuild, meaning supply constraints will continue. "As a result, even with a ceasefire, wholesale gas prices are likely to stay elevated for some time, limiting how far the July price cap can fall." You can also get in touch by following this link
