Oil Back Above 100 Dollars: UK Petrol, Bills and Travel Impact

What has happened

The conflict between the United States, Israel and Iran has entered a new and more dangerous phase, and for the first time the UK is directly named in it. A wave of American strikes on Iranian military targets on 21 July included a B-1 bomber mission that British officials confirmed was launched from RAF Fairford in Gloucestershire, after the government allowed the base to be used for the operation. Iran's Islamic Revolutionary Guard Corps responded with a statement declaring that any base used for aggression against Iranian territory is a legitimate target, a threat aimed explicitly at Fairford. At the same time, Houthi forces aligned with Iran have resumed attacks on commercial shipping passing the Bab el Mandeb strait at the southern end of the Red Sea, one of the chokepoints through which a significant share of global oil and goods traffic flows. The combination of direct strikes on Iran and renewed attacks on shipping pushed the price of oil back above 100 dollars a barrel for the first time since May, with the price peaking near 120 dollars before settling back to around 90 dollars as markets weighed the response.

Why the oil price moves matter for the UK

The UK imports a substantial share of its crude oil and refined fuels, and wholesale prices set in global markets feed through to what households pay in two main channels. The first is the petrol forecourt. Pump prices track the wholesale cost of refined fuel with a lag of days to a few weeks, so a sustained period of crude above 100 dollars would be expected to lift petrol and diesel prices through August, while the fall back towards 90 dollars, if it holds, would limit the damage. The second channel is energy bills. Although the UK generates little electricity from oil, gas prices move in sympathy with oil during Middle East crises because the region is a major supplier of liquefied natural gas, and gas sets the marginal price of electricity in the UK market. Iran has threatened that oil could reach 200 dollars a barrel if the conflict continues, a claim aimed at markets as much as governments, and in response the United States and the International Energy Agency have agreed to release 400 million barrels from strategic reserves, a historically large intervention designed to cap the spike. Reserve releases have historically dampened price peaks rather than reversed underlying pressure.

The October price cap question

The Ofgem price cap for July to September is already fixed, which means household unit rates are protected from the current volatility until 1 October. The question is what happens to the October cap, which is calculated from wholesale prices observed during an assessment window that includes the current period of disruption. Because of the cap methodology, volatility gets baked into the calculation even if prices later fall back, a point energy analysts made repeatedly during earlier phases of this conflict. Supplier forecasts circulating before the latest escalation already pointed to the October cap rising by around 5 percent for a household with both gas and electricity, and a longer or deeper disruption would push that estimate up. Working in the other direction is the government's decision to remove VAT from domestic electricity bills from 1 October, announced by Prime Minister Andy Burnham in his first week in office, which is worth around £45 a year for a typical household. If the cap rises around 5 percent as forecast, the VAT saving would offset a meaningful part of the electricity side of the increase, though not the gas side, where no equivalent cut applies.

Petrol prices and what drivers can expect

Petrol prices respond faster than energy bills because there is no cap and no quarterly reset: retailers reprice as their wholesale costs move. The rough historical pattern is that a sustained 10 dollar move in crude translates into a few pence per litre at the pump once refining margins and the exchange rate are accounted for, with supermarket forecourts usually moving first in both directions. The sharp spike towards 120 dollars, had it persisted, would have implied a return towards the pump prices last seen during the 2022 energy crisis. The settlement back to around 90 dollars means the immediate pass through should be more modest, but drivers should still expect prices to drift up over the coming weeks rather than down, and the direction from here depends entirely on events in the Gulf and the Red Sea. The strength of sterling against the dollar also matters, since oil is priced in dollars, and any risk driven weakness in the pound amplifies the effect at UK forecourts. Fuel duty and VAT make up a large fixed share of the pump price, which cushions the percentage swing but not the pence per litre movement.

Travel, flights and wider prices

The escalation has consequences beyond fuel. Airlines have been rerouting around Iranian and neighbouring airspace during periods of active strikes, which lengthens flight times on routes between the UK and Asia and raises fuel burn, costs that eventually show up in fares. Anyone with travel booked to the wider Middle East region should check Foreign, Commonwealth and Development Office travel advice before departing, since insurance cover is generally invalidated for travel against FCDO advice, and airlines' cancellation and rebooking policies typically key off the same advice. Shipping disruption through the Red Sea also carries a slower burning cost for UK consumers: vessels avoiding the Bab el Mandeb strait divert around southern Africa, adding time and cost to goods arriving from Asia, a dynamic that added to shop price pressure during the 2024 Red Sea disruption. None of these effects is instant, and all of them reverse if the situation de-escalates, but the pattern from previous rounds of this conflict is that some of the cost pressure persists in bills, fares and freight rates well after the headlines fade. The Bank of England will also be watching, since an oil driven inflation bump complicates the path for interest rate cuts.

Frequently asked questions

Why has the oil price gone above 100 dollars?

Renewed strikes on Iran and Houthi attacks on shipping passing the Bab el Mandeb strait raised fears about supply from the region, pushing Brent crude above 100 dollars for the first time since May, with a peak near 120 dollars.

Will UK energy bills go up because of the conflict?

The price cap is fixed until 1 October, so unit rates are protected for now. Wholesale volatility during the assessment window feeds into the October cap, and supplier forecasts point to a rise of around 5 percent.

Does the electricity VAT cut still happen in October?

Yes. VAT is removed from domestic electricity bills from 1 October, worth around £45 a year for a typical household, which would offset part of any cap increase on the electricity side.

How quickly do petrol prices react to the oil price?

Pump prices follow wholesale fuel costs with a lag of days to a few weeks. A sustained rise in crude feeds through gradually, and supermarket forecourts usually move first.

Is it safe to travel to the Middle East at the moment?

Travellers should check current Foreign, Commonwealth and Development Office advice for their destination before departing. Travelling against FCDO advice generally invalidates travel insurance.