Experts say global commodity prices are set to soar even higher as a result of the UK, US and EU announcing plans to punish Moscow for invading Ukraine. The RAC says UK petrol prices could hit £1.60 a litre this week and £1.65 soon.
And one think tank warned household disposable incomes could see the biggest fall since 1955 as prices surge in the second quarter of the year. The UK, which gets 8% of its oil from Russia, said on Tuesday that it plans to phase out these imports by the end of 2022.
Meanwhile, the US said it would immediately ban Russian oil and gas and the EU vowed to cut its gas imports by two thirds this year. Business Secretary Kwasi Kwarteng tweeted that the UK’s transition would give its “market, businesses and supply chains more than enough time to replace Russian imports”. Robert Buckley, an energy analyst at Cornwall Insight, told the BBC the UK ban was “largely symbolic” because Russian oil was such a small part of its overall energy mix.
However, together with the US ban, and widespread boycotts by western companies, the move is likely to increase already high oil prices in the coming weeks, he said. “This is a global market and you’ve got to replace that displaced supply somehow,” Mr Buckley told the BBC. “At the margin, this decision will act to support oil prices which are already extremely high.”
The price of Brent crude – the global oil benchmark – has climbed for weeks, hitting a 14-year high of $139 a barrel at one point on Monday. Prices jumped 7% on Tuesday after the sanctions were announced. Brent crude was trading just below $130 on Asian markets on Wednesday morning.
Those rising wholesale costs are feeding through to higher petrol prices at the pump, a trend the RAC expects to accelerate. “We were at £1.56 per litre for petrol and £1.62 for diesel yesterday, both records,” the RAC’s fuel spokesman Simon Williamson told the BBC.
“In 2016, you could regularly get petrol for under £1 a litre at supermarkets and other low-cost retailers.” He said he expected prices to remain high as long as the conflict continued, although a deal to unlock supply from Iran or Venezuela – both of which face their own oil sanctions – could ease the pressure.
“It’s not just about what consumers pay at the pump,” he added. “Everything in our shops has ultimately been moved by a diesel-powered lorry and businesses are obviously likely to pass on these costs.” Even before Russia invaded Ukraine, the UK’s cost of living was rising at its fastest rate in 30 years amid surging global demand for oil and gas as pandemic restrictions eased. But the war has added to this pressure, driving up the cost of not just fuel and energy but also other commodities like wheat and metals.
Nathan Piper, an oil and gas analyst at Investec, said the EU’s decision on Tuesday to reduce its reliance on Russian gas was also likely to hit the UK. Wholesale gas prices have been climbing for months and analysts expect the UK’s energy price cap – which limits what consumers pay for gas and electricity – to rise to more than £3,000 a year for the average household when it is next reviewed in October. “We are on the cusp of a prolonged period of high oil and gas prices, possibly lasting several years,” Mr Piper told the BBC.
“You can’t just cut the second-largest gas producer and third-largest oil producer out of global supply and not expect it to have a big impact on consumers,” he added. He said there would be “extreme fuel poverty” over the next few years, with the government facing growing pressure to offer more support.
In research published on Tuesday, the Centre for Business and Economic Research (CEBR) warned that a combination of rising commodity and oil prices and sanctions was likely to have a major impact on the UK economy. It estimates that GDP growth this year will be more than halved – down from a previously forecast 4.2% to 1.9%. The CEBR also expects inflation to hit 8.7% in the second quarter of this year and disposable incomes to fall by 4.8% in 2022 – the largest drop since records began in 1955. “The forecast fall in living standards this year is an estimated £71bn – which amounts to £2,553 per household,” it said.
