Introduction: An oil shock the UK had hoped to avoid

The price of Brent Crude has pushed decisively above $110 a barrel, a level not seen since the immediate aftermath of Russia’s invasion of Ukraine and one that policymakers in London had repeatedly hoped to avoid. With the war between the United States, Israel and Iran entering its ninth week and the Strait of Hormuz effectively closed to commercial traffic, global energy markets are now operating in a regime defined less by Supply/">Supply-Demand/">Demand fundamentals and more by minute-to-minute geopolitical risk.

For the UK, the implications are wide-ranging and uncomfortable. Higher oil prices feed almost mechanically into petrol and diesel pump prices, into the cost of jet fuel, into the operating budgets of road hauliers and into the input bills of thousands of manufacturers. They also leak into the Inflation/">Inflation data that the Bank of England’s Monetary Policy Committee uses to set interest rates, into the household Disposable Income that drives consumer-facing companies and into the political mood that shapes the next general election.

This article looks at how oil got to where it is, what is moving prices on a day-to-day basis, the specific risks for UK businesses and consumers, and the scenarios analysts are now modelling for the rest of 2026.

How we got to $110: A timeline of the 2026 oil shock

The escalation that has lifted Brent from the mid-$70s in early March to above $110 in late April began with a single contested incident in the Gulf, but the underlying tension had been building for months. Iran’s involvement in regional proxy conflicts, the gradual unwinding of the 2015 nuclear-deal architecture and a hardening Israeli posture had all combined to make a confrontation more likely than not.

When direct hostilities broke out, the immediate market response was relatively contained. Brent moved from roughly $84 to $92 in the first week, reflecting the standard wartime risk premium. But as Iranian missile and drone strikes escalated, as US carrier groups moved into position and as commercial shipping companies began to suspend Hormuz transits, the calculus shifted. By the third week of the war, Brent had broken $100. By the seventh, it was above $105. By 28 April 2026, intraday prices were touching $111.

The Strait of Hormuz, through which roughly twenty per cent of global energy consumption flows in normal conditions, has been the central choke point. Tehran has repeatedly stated that any tightening of US sanctions or any direct strike on Iranian territory would result in a closure of the strait, and in practice the disruption has been close to total. Insurance premiums on hulls transiting the Gulf have soared. Major shipping firms have rerouted cargoes to alternative terminals such as the UAE’s Fujairah, on the Gulf of Oman, or have paused shipments altogether.

Where the price is now and what is moving it day-to-day

As of late April 2026, Brent is trading in a band roughly between $107 and $112 a barrel, with West Texas Intermediate close behind. Spreads between front-month and longer-dated contracts indicate that traders expect the shock to be at least somewhat persistent rather than purely transient. Implied Volatility/">Volatility on oil Options/">Options, captured in the OVX index/">index, is at multi-year highs.

Several factors have moved prices on individual days. The resignation of Iran’s lead negotiator pushed Brent above $105 in late April. Statements from Washington about being dissatisfied with Tehran’s latest proposal sent prices through $108. A subsequent claim that Iran might be open to reopening the strait briefly trimmed prices, only for them to rebound when no concrete commitment materialised. Citi analysts have warned publicly that prices could test $150 if Hormuz disruption persists through the end of June.

Alongside the war narrative, traders are watching three Subsidiary/">Subsidiary stories. The UAE’s announced departure from OPEC/">OPEC and OPEC/">OPEC+ on 1 May 2026 has added a structural layer of uncertainty. US shale operators, who have lost some pricing discipline since the Merger/">Merger wave of the early 2020s, are not ramping output as aggressively as they would have a decade ago. And Chinese Demand/">Demand, which had been a swing Factor/">Factor on the bearish side, has stabilised at a higher level than many forecasters expected.

What this means for UK petrol and diesel prices

The relationship between Brent Crude and UK pump prices is well understood, even if it is rarely instantaneous. As a rough rule of thumb, a sustained $10 rise in Brent translates into about 7p extra at the pump, depending on sterling-dollar movements, refinery margins and retailer behaviour.

That implies pump prices roughly 15-20p higher than they were in early March, and they are. The RAC and AA have both reported that average forecourt prices have moved to multi-year highs, with diesel — which is more directly exposed to global gasoil prices — rising faster than petrol. The cost of a typical fuel-up for a family car has gone up by several pounds in a matter of weeks.

For the average commuter that is uncomfortable. For small businesses that depend on diesel — courier firms, plumbers, van fleets, taxi drivers, mobile tradespeople — it is corrosive. The Federation of Small Businesses has been increasingly vocal about the cumulative effect of fuel-cost rises on margins. Retailers such as supermarket forecourts have come under fresh pressure from MPs to ensure that any subsequent fall in wholesale prices is passed on swiftly.

Beyond the forecourt, jet fuel prices have moved sharply. UK airlines including IAG (the parent of British Airways), easyJet and Wizz Air have all flagged the input-cost pressure to investors. Heathrow’s traffic volumes remain strong but the underlying fuel bill is now materially higher than the airline industry had assumed in its 2026 budgets.

Inflation/">Inflation, the Bank of England and the rate-cut question

The Bank of England has been the central institution caught in the headwinds. Before the Iran war, two rate cuts in 2026 had been the consensus. The Bank Rate stood at 3.75 per cent following the March 2026 meeting, with markets expecting a path back towards 3.25 per cent by year-end.

That expectation has been comprehensively dismantled. With CPI Inflation/">Inflation at 3.3 per cent and energy prices likely to push it higher, the Bank’s rate-setters now face the most awkward decision since the Truss-era market turmoil. The 30 April 2026 meeting will be the first test of how the MPC reads this new world. Some analysts now expect rates to be held for the rest of 2026 and into 2027. A handful are warning that a hike cannot be ruled out if oil prices remain above $110 and second-round effects begin to appear in services Inflation/">Inflation.

For Mortgage/">Mortgage holders, the implication is straightforward and painful. Anyone hoping to remortgage in the second half of 2026 onto a meaningfully lower rate may need to rethink. Swap rates, which feed through to fixed-rate Mortgage/">Mortgage pricing, have moved decisively higher since early March. The brief window of softening fixed-rate offers in the first quarter has closed.

For the Chancellor, the political mathematics are equally unpleasant. Rising prices erode Disposable Income, which erodes consumer spending, which erodes growth, which erodes tax receipts, which erodes the headroom against the fiscal rules. The Treasury’s Office for Budget Responsibility forecasts, prepared on assumptions that now look distinctly out of date, will need to be revisited.

Sterling, the FTSE and how UK markets have reacted

UK Assets/">Assets have responded to the oil shock in an unusual pattern. Sterling has been pulled in two directions: weaker against the dollar because of the global flight to safety, but relatively firm on the trade-weighted basis because gilts have, for once, behaved as a defensive asset.

The FTSE 100 has held up better than European peers thanks to its heavy weighting in energy stocks. BP and Shell have rallied on the assumption that, even after windfall taxes, sustained $110-plus oil will lift Cash Flow. Other beneficiaries include defence stocks, which have ridden the war story, and certain utilities with regulated price pass-through. Domestically focused mid-caps have struggled. The FTSE 250, more exposed to consumer Demand/">Demand and to UK borrowing costs, has lagged.

Currency markets have been particularly volatile in the cross-rates. Sterling has weakened sharply against the Norwegian krone — itself a petrocurrency — and against the Australian dollar. Against the euro, sterling has held a relatively narrow range as both economies face similar energy headwinds.

Sectoral implications across UK Business/">Business

Several sectors deserve particular attention.

Logistics and haulage is at the front line. Diesel typically accounts for around a third of operating costs for road hauliers. Sustained $110 oil implies fuel surcharges that retailers and manufacturers will resist passing through, squeezing margins in an already low-Margin/">Margin industry.

Aviation has been hit hard. Beyond the direct fuel-cost impact, the Iran war has also reshaped flight paths, with airlines avoiding large parts of Iranian and Iraqi airspace and rerouting via the Caspian, the Caucasus or the Arabian peninsula. That adds flight times, fuel burn and crew costs.

Manufacturing/">Manufacturing is exposed in two ways: directly through energy bills, and indirectly through the cost of feedstocks. Petrochemical-derived inputs have surged in line with crude. Chemicals manufacturers including the listed Croda and Synthomer have all flagged input-cost pressures.

Consumer-facing companies are caught in the squeeze. Supermarkets are bracing for renewed supplier price requests. Pubs and restaurants, where energy is a significant overhead, are warning that another wave of cost rises could push more operators out of Business/">Business after the difficult 2022–2024 period.

Insurance and Reinsurance/">Reinsurance is one of the few sectors where higher oil prices are commercial good news. Premium rates on tanker hulls, on energy-asset war risks and on aviation hull war policies have all spiked. Lloyd’s of London syndicates with energy and marine exposures stand to benefit from a hard market, though they will also need to manage tail risks carefully.

Risks and uncertainties

The defining uncertainty is the duration and resolution of the Iran war. A negotiated ceasefire that reopens Hormuz could send Brent back to the mid-$80s within days. An escalation that involves attacks on Saudi or Emirati facilities, or that draws in additional regional actors, could push prices well above $130 and possibly into the $150 range that Citi has flagged.

A second uncertainty concerns OPEC/">OPEC discipline. With the UAE leaving the cartel on 1 May 2026, Saudi Arabia faces a choice between holding output to defend prices or lifting it to defend Market Share. The latter would amount to a partial price war and would moderate the bullish trajectory.

A third uncertainty involves US shale. The American shale industry remains the world’s most price-elastic source of Supply/">Supply. If $110 Brent persists for two or three quarters, completion activity should pick up materially, even if the macro picture remains uncertain. That is a slow-acting force on prices but a real one.

A fourth concerns sterling. A flight to the dollar that takes cable below $1.20 would amplify imported energy Inflation/">Inflation and force the Bank’s hand.

Expert-style analysis: What to watch

Several near-term indicators will matter most.

Tanker movements through Hormuz, captured by AIS-tracking services, will give the cleanest read on whether the strait is reopening. A sustained increase in laden VLCC departures from Iraqi or Saudi terminals would be the first concrete sign of de-escalation.

OPEC/">OPEC+ communications, particularly any statement from Saudi Arabia about voluntary cuts or compensation mechanisms, will signal whether the cartel can hold together without the UAE.

US strategic petroleum reserve releases — which have been used aggressively in past shocks — would suggest that Washington is determined to lean against prices. A coordinated release with the International Energy Agency would be more powerful still.

UK CPI prints for April and May, due in mid-May and mid-June, will be the most market-moving domestic data points. Any sign that energy costs are pushing services Inflation/">Inflation higher, or that wage settlements are responding, would harden the case for holding rates.

Future outlook

Most forecasters now expect the next two quarters to be defined by elevated and volatile oil prices, with a wide range of plausible outcomes. The base case at the major banks is for Brent to average between $95 and $115 over the remainder of 2026, depending on the war’s trajectory. The bear case, contingent on rapid de-escalation, sees Brent in the mid-$70s. The bull case, contingent on a serious widening of the war, sees prices testing $150.

For UK households, the practical guidance is to assume that fuel and energy bills will not return to early-2026 levels in any hurry. For UK businesses, the practical guidance is to revisit hedging, fuel-Surcharge/">Surcharge mechanisms and contingency planning.

Conclusion

A Brent Crude price above $110 a barrel was not in any of the central scenarios that UK policymakers, businesses or households were working with at the start of 2026. It is the consequence of a war that the world hoped to avoid and of a shipping chokepoint that has refused to clear. The longer this regime persists, the more permanent the damage to disposable incomes, to the Bank of England’s path back to its Inflation/">Inflation target and to the operating margins of fuel-exposed businesses.

There is no quick fix in the policymaker’s toolbox. Rate cuts cannot bring Hormuz back. Strategic reserves can buy time but not solve the problem. The honest message for UK readers is that this is a shock to be navigated rather than wished away, and that the businesses and households that prepare for a long stretch of expensive energy will weather it better than those still hoping for a swift return to normal.