While Saudi Arabia and the United Arab Emirates (UAE) led the export rebound, a recovery in energy flow via the strategically important Strait of Hormuz played a big role as well.

As per Kpler’s initial estimates, energy trade through the Strait was set to hit about 7.4 million bpd this month.

Saudi Arabia, however, has diverted oil exports from the Red Sea port of Yanbu following Iran-backed militant attacks that damaged the Kingdom’s East-West pipeline.

While exports from the region – which includes Saudi Arabia, the UAE, Iraq, Oman, Qatar, Kuwait, and Iran – have rebounded, they were still about six million bpd down from 18.8 million bpd in February, according to Kpler.

The region’s top exporter Saudi Arabia was on track to ship about 5.4 million ‌bpd ⁠this month, rebounding from 2.446 million bpd in August.

“September shipments from the Ras Tanura port in the Gulf jumped to about 3.6 million bpd, from 929,000 bpd in August, but still lower than the 6.411 million bpd recorded in February,” Kpler noted.

“A total of 19 huge crude carriers, carrying 2 million barrels of Saudi oil each, exited the Strait of Hormuz last week,” the data stated further.

The figures, however, exclude any vessels ⁠that might have crossed the Strait with their Automatic Identification System transponders turned off to avoid detection.

Before the Iran war, the strait ⁠used to handle about 125 large commercial vessels per day, including tankers, gas carriers, bulkers and container vessels, accounting for some 20% of the world’s daily crude oil and liquefied natural gas (LNG) supply.

Talking about LNG, the traffic of this commodity linked to Qatar through the Hormuz Strait has increased, with more vessels associated with QatarEnergy transiting through the maritime chokehold last week.

While Kpler didn’t see visible transits by Qatar-linked LNG vessels or vessels carrying cargoes from the Ras ‌Laffan gas terminal through the Strait in August, amid fears of attack by Iran, it didn’t rule out the possibility of some tankers stealthily crossing the route by keeping their transponders off.

The latest LNG vessel to reappear outside the Strait is the GasLog Skagen, which was reported off Sri Lanka on September 27 with a cargo from Ras Laffan, according to LSEG and Kpler.

The vessel, managed by Greece’s GasLog LNG Services, had been inside the Gulf from the start of the Iran war, ferrying cargoes from Qatar to the UAE and Kuwait, until it was last seen there on September 20.

“Another LNG vessel carrying a Qatar-origin cargo, Al Shamal, was last seen inside the strait on September 19 and reappeared outside Hormuz around September 24-25. Managed by Seapeak Maritime, it is currently skirting southern India,” LSEG and Kpler remarked.

The two Qatari-linked vessels, Mesaimeer and Al Ghashamiya, also left the Gulf with cargoes from Ras Laffan. While ‌LSEG and Kpler identified the ⁠Mesaimeer, with the latter reappearing off Oman on September 23, Al Ghashamiya delivered its cargo to Dahej, India, on September 24.

The Qatari-linked Al Samriya appeared outside the waterway on September 17, the same day that Seapeak Maritime-managed Al Daayen emerged with a cargo en route for Caofeidian, China.

Shandong Redwood, managed by Qingdao-based Shandong Marine Energy, transited through the ⁠Hormuz on September 19 and delivered a cargo to Pakistan on September 23.

At least one LNG vessel entered the Strait last week. Qatari-linked Al Mafyar, last seen outside the Hormuz on September 19, reappeared in ballast inside the Hormuz ⁠on September 22.

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The jump in Kuwaiti crude oil output ⁠also indicates that energy trade, the lifeline of the Middle East’s key economies, through the Strait of Hormuz is recovering rapidly following disruption caused by the Iran war, with stranded cargoes gradually clearing the strategically important maritime chokehold and exporters restoring production.

It is worth mentioning that around USD 600 billion in energy trades used to pass through the Strait of Hormuz on an annual basis till the beginning of 2026. This key water route daily handles about 20 million barrels of crude oil and petroleum and up to 20% of global liquefied natural gas (LNG).

Kuwait was producing a crude volume of 2.5 million bpd before Iran’s closure of the Strait in response to the American and Israeli airstrikes at the end of February. The disruption prompted the country and other Gulf producers like Saudi Arabia and Iraq to cut millions of barrels per day of oil output.

With the war now coming to an end and things normalising at the Hormuz, daily production in the last 10 ‌days ⁠of June rose to as high as 1.9 million bpd, claimed a Reuters report. As oil production and trade recover quickly, it has directly affected the crude price, with the Brent futures and West Texas Intermediate (WTI) trading at USD 71.87 and USD 68.63, respectively.

State oil company Kuwait Petroleum Corporation has already lifted all force majeure notices issued during the war, while a tender document on June 19 showed the company offering cargoes to buyers.

The recovery in energy flows augurs well for Kuwait, which was ⁠one of the hardest-hit countries in the Gulf by the Iran war due to the closure of the Strait of Hormuz. Unlike Saudi Arabia and the United Arab Emirates (UAE), which ⁠can use export routes other than the Strait, Kuwait relies almost entirely on the waterway for its crude exports, leaving it effectively cut off from key markets such as Asia during the disruption.

Leaving behind the war-related disruptions, Kuwait Petroleum Corporation (KPC) is now focusing on raising fresh capital by asking global funds bidding for a USD 7 billion stake in its oil pipeline network to recruit other investors to ‌help consolidate bids. The rule tweak, as per the reports, has been done to ensure that smaller investors that have relationships with KPC can get involved in the process. KPC, following the lead of its other Gulf counterparts and sovereign investors, is looking to raise funds from infrastructure assets and attract foreign capital, with the goal of diversifying away from oil and funding domestic investment plans.

Among the bidders, Blackstone has emerged as the prominent name. For the first time, the world’s largest alternative asset manager has taken part in a wave of Gulf national oil company infrastructure deals that have also attracted rivals like BlackRock and its Global Infrastructure Partners (GIP), as well as KKR and others.

Saudi Aramco, Abu Dhabi’s ADNOC and other regional energy companies have pursued ‌similar ⁠asset strategies in recent years. Aramco has already signed an USD 11 billion lease and leaseback deal for its Jafurah gas processing facilities with a consortium of funds managed by GIP in a deal that got closed in October 2025.

BlackRock’s GIP, Brookfield, EIG Global Energy Partners, KKR and Apollo have also advanced to the ⁠KPC’s next stage of the sales process. KPC launched the transaction in the early stages ⁠of the Iran war, indicating the Gulf nation’s strong intent to press ahead with its fundraising plans despite the geopolitical volatility.

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As per the data, total exports dropped by 20.5% to 4.502 billion dinars from 5.66 billion dinars in the first quarter of 2025. Imports declined as well, falling 12.3% to 2.734 billion dinars from 3.11 billion dinars a year earlier. Due to this, Kuwait’s total trade exchange contracted by 17.6% to 7.236 billion dinars during Q1 2026, down from 8.77 billion dinars in the corresponding quarter of last year.

“The slowdown continued in March, when the monthly trade surplus declined by 29.2% year-on-year to 610.6 million dinars, compared with 862.8 million dinars in March 2025. Exports during the month fell 37.8% to 1.181 billion dinars, while imports dropped 45% to 570.6 million dinars,” noted the Central Statistical Bureau.

Oil and petroleum product exports accounted for the Gulf country’s majority of overseas sales, reaching approximately 1.09 billion dinars in March 2026, down from 1.7 billion dinars in the same month in 2025.

“Non-oil exports totalled 42.5 million dinars, while re-exports reached 44 million dinars,” the Central Statistical Bureau added further.

As per the bureau, Saudi Arabia remained the leading destination for Kuwait’s non-oil exports in March, with the Kingdom importing goods worth 26.5 million dinars. The United Arab Emirates (UAE) came second at 17.1 million dinars, followed by Jordan (at 7.5 million dinars), India (at 7.47 million dinars) and Iraq (at 5.24 million dinars).

“On the import side, China retained its position as Kuwait’s largest trading partner, with imports valued at 105.3 million dinars during March. Saudi Arabia followed with imports worth 95.8 million dinars, ahead of the UAE at 64.1 million dinars and Japan at 31.2 million dinars,” the agency remarked.

Trade with Gulf Cooperation Council (GCC) countries also weakened during March 2026. Kuwaiti exports to GCC markets declined by 35.1% to 49.4 million dinars compared with 76.2 million dinars in March 2025. Still, Gulf markets accounted for 4.2% of Kuwait’s total exports, slightly higher than the 4% share recorded a year earlier.

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As per the 11-member intergovernmental organisation, global oil demand would rise to 113.3 million bpd in 2030 from 105.1 million barrels per day in 2025. Compared to the 2025 report, the overall figures have remained little changed, while the 2030 forecast remains the same.

OPEC has ⁠steadily increased its long-term oil demand forecast in the years following the COVID-19 pandemic, which in 2020 had prompted a demand contraction. Also, the organisation’s latest report comes amid the energy sector facing unprecedented challenges, as the Iran war has forced Gulf exporters to make huge export cuts, while the departure of the United Arab Emirates (UAE), an OPEC country for almost 60 years, created a void within the group.

“Changes in government policy in the US, Europe and elsewhere and long-term growth in India, the Middle East, Africa and Latin America will drive the demand expansion, despite impressive progress by China in its shift to renewable energy,” OPEC said.

“The increased focus on energy security and energy affordability has shifted the energy policy landscape across the globe. This is reflected in policy adjustments and reversals, which are expected to be supportive of oil demand in ‌the medium ⁠and long term,” the report stated further.

OPEC also cited factors like a slower-than-expected take-up of electric vehicles in Europe and policy changes by United States President Donald Trump’s administration affecting support for renewables, EVs and fuel efficiency standards.

“For the longer term, OPEC expects world oil demand to reach 124 million barrels per day by 2050, up from 122.9 million bpd expected in last year’s report, and reiterated its view that there is no peak demand on the horizon,” the report noted.

In contrast, the IEA (International Energy Agency) said in ⁠November 2025 that oil demand would hit 113 million bpd by mid-century. While the IEA’s 2050 forecast is much lower than OPEC’s, the agency had earlier expected demand to peak by 2029.

As per the ship-tracking data, the United States has become the world’s largest oil exporter in 2026, reflecting the boom in its output driven by shale oil and disruptions ⁠to Saudi and Russian exports by wars and sanctions.

“US output of tight crude, another term for shale, likely peaked in 2025 at just over 9 million bpd and sees modest total US liquids supply growth of 400,000 bpd until 2030 and a production ⁠plateau thereafter,” OPEC said.

The intergovernmental organisation expects production from countries outside OPEC+ (the wider group that includes OPEC members plus Russia and other allies) to peak from the early 2030s.

OPEC has been calling for more oil industry investment and said the sector needs spending worth USD 17.7 trillion by 2050, compared with USD 18.2 trillion estimated in 2025.

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Brent crude futures fell USD 3.65, or 4.2%, to USD 83.68 a barrel, and US West Texas Intermediate was at USD 80.75, down USD 4.13, or 4.9%. Both contracts fell to their lowest levels since March 10 on June 15 after tumbling more than 3% on June 12.

Trump said that while the Strait of Hormuz would be open “toll-free”, a US naval blockade of Iranian ports would also end. Iran’s semi-official Mehr news agency, on the other hand, said the draft deal called for reopening the Strait of Hormuz within 30 days under Iranian arrangements.

The global energy market has lost millions of barrels of oil and gas supply since the beginning of the Iran war, which also saw domino effects like attacks on the Middle East’s energy facilities, apart from the closure of the Strait of Hormuz, a strategic maritime chokepoint through which a fifth of the world’s oil and liquefied natural gas (LNG) supplies get transported.

“The geopolitical risk premium that had been built into crude is now being unwound quite aggressively as traders price in the prospect of restored oil flows,” said Tim Waterer, chief market analyst at KCM Trade, while interacting with Reuters.

Investors will also be watching cautiously how quickly Middle ‌Eastern producers ⁠can resume oil production and exports following damages from the war and whether more ships will enter the region.

The extreme volatility of global oil prices, resulting from the Iran war, has drained liquidity from the market in 2026 at the fastest pace ‌on record, with investors becoming increasingly cautious about committing cash to an asset that, for a month, became hostage to Trump’s daily social media posts on the “peace deal”. While a deal has been reached after days of flip-flops, the market is still expected to take a “wait-and-watch” approach.

As per the traders, Trump’s pattern of giving threats to Tehran through his Truth Social posts, only to assert later that a peace deal is imminent, as well as the difficulty in tracking real-world oil fundamentals, created a degree of fatigue among investors.

Liquidity, or how well matched the number of buyers is to the number of sellers, is a function of a number of factors, including traded volume and open interest (the number of Brent crude futures contracts that investors own). The latter has fallen by nearly 17% in 2026, the fastest rate ⁠since at least 2009, stated the LSEG data.

“While these uncertainties suggest upside risks to our forecast for Brent oil futures to reach USD 80/bbl by the end of the year, it’s worth noting that oil flows through the Strait of Hormuz just need to reach 60%-70% of pre-war levels to return oil markets to pre-war oversupply expectations,” Vivek Dhar, a commodities strategist ⁠at Commonwealth Bank of Australia, said in a note.

As per Gharibabadi, a more expansive agreement would be negotiated during a 60-day ceasefire period.

E4 nations, which include the United Kingdom, France, Germany and Italy, have already announced their intentions to lift sanctions on Iran in ⁠response to the latter’s steps on its nuclear programme.

“Beyond the immediate price reaction, attention will now shift towards the pace of actual supply normalisation and compliance with the agreement. While the conflict may have come to an ⁠end and oil flows through the Strait of Hormuz may gradually return to normal, the damage already done cannot be reversed overnight. This includes not only any physical damage to oil infrastructure but also the economic strain endured by oil-importing economies that have faced elevated energy costs for months,” said Priyanka Sachdeva, senior market analyst at Phillip Nova, while interacting with Reuters.

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Following the global pattern, combined onshore oil product stocks totalled 34.41 million barrels in the week to June 10, the lowest since July 2013.

Inventories of residual fuel, the most stored oil product in the city-state’s storage tanks that typically goes into ships ⁠as marine fuel or to refineries as feedstock, totalled 14.84 million barrels during the same period, hitting their lowest in close to eight years.

Oil inventories in global storage hubs have been shrinking as most Middle Eastern shipments remain curtailed due to the Iran war and, most importantly, the blockade in the Strait of Hormuz, the maritime chokepoint that facilitates the daily transit of roughly USD 600 billion worth of energy trade.

Coming back to Singapore, the latter’s net imports of heavy distillates fell by 36.3% week-on-week, while there was no increase in import volumes from the Middle East.

“Recent flows have been stabilised by heavy US exports and vessel repositioning, but these are temporary supports. Inventories are being drawn down, key hubs are nearing operational minimums, and geopolitical risks around the Strait of Hormuz remain unresolved,” Sparta Commodities analysts told Reuters.

Fuel oil trading sources, quoted by the media outlet, expect residual fuel inventories to rebound amid more incoming supply replenishments from the West. Meanwhile, middle distillate stocks have declined further, hovering at about three-month lows, though net ‌exports ⁠of both diesel and jet fuel grew week-on-week.

Singapore’s diesel/gasoil and jet fuel/kerosene stocks stood at around 6.9 million barrels, down from 7.3 million barrels a week earlier. Net exports of diesel/gasoil grew nearly five times from a week earlier, with total imports falling 42% week-on-week. Cargoes from India, South Korea and Indonesia were the key contributors to imports.

More Indian-origin barrels are likely slated to hit ⁠Singapore shores in June, with a narrowing east-west price spread making it more profitable for sellers to send their cargoes to Asia instead of markets west of Suez.

Singapore’s exports gained 56% week-on-week, with volumes to regional destinations such as ⁠the Philippines, Vietnam, Australia and Malaysia remaining robust. As for jet fuel, net exports rose nearly 8%. Light distillate stocks, which include naphtha and gasoline, rebounded to a two-week high of ⁠12.66 million barrels.

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The declining investment appetite comes at a time when the global energy markets remain disrupted by the Iran war, which has halted tanker traffic through the Strait of Hormuz, apart from causing production stoppages across the Middle East.

These developments have forced companies to accelerate ⁠investment in other geographies and boost spending on renewables, LNG and coal to shore up supply security.

“We are already seeing intensified efforts by both producer and consumer countries to diversify trade routes and energy sources,” IEA Director Fatih Birol said.

The “World Energy Investment 2026” report predicts capital flows to the energy sector to grow 5% in 2026 to reach USD 3.4 trillion, despite Middle East disruptions.

“Expectations for investment across different fuels vary widely, with oil set for another subdued year. Natural gas and coal are poised for continued growth as the next major wave of LNG projects advances and energy security concerns in Asia drive renewed demand for coal,” the report said.

While USD 2.2 trillion will go to renewables, energy ‌storage, ⁠power grids and low-emission fuels, less than USD 500 billion will be invested in oil supply. Total spending on fossil fuel supply in 2026 is expected to reach just over USD 1 trillion, returning to 2024 levels after the near 3% decline in 2025.

“Heightened concerns over energy security are expected to boost investment in domestic power supply, including renewables, nuclear and coal. This comes at a time when global investment in renewable electricity is flattening after several years of rapid growth, although renewables still account for more than 70% of total power generation spending, including USD 365 billion – USD 1 billion a day – for solar projects. At the same time, orders for new natural gas-fired power plants surged to 130 GW in 2025, a 25-year high, with US data centre demand a major driver,” the report added.

Natural gas’ investment growth will largely come from the United States-based projects. However, the current energy shock that arose from the Strait of Hormuz blockade has made Asian importers cautious on gas dependence.

“Coal investments will reach a 14-year high, hitting USD 180 billion, ⁠driven by China and India. “Nuclear is making a comeback with USD 80 billion in spending this year,” IEA remarked.

The gloom will be upon the Middle East, as oil and gas investments are expected to fall 1% ⁠in 2026. Damage from the Iranian missile and drone attacks; lower revenue; and production stoppages, in the IEA’s opinion, are reducing the region’s ability to deploy capital.

By contrast, upstream investment in Africa, Central and South America will ⁠jump more than 10% in 2026 as ongoing projects gain momentum.

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The military conflict involving the United States, Israel, and Iran began on February 28, 2026. It was not just a geopolitical event, but the beginning of an economic crisis reshaping the daily lives of millions of people in the United Kingdom.

This article is an attempt to explain what is happening, why it matters, and what it means for ordinary British workers, families, and businesses.

Distant war and British utility bills

The worst part of the Middle East conflict has been the blockade of the Strait of Hormuz, which passes one-fifth of all oil and LNG. Both Iran and the United States tried to play hardball with the maritime chokepoint to get the better of each other at the negotiation table in Islamabad. The biggest victim of the geopolitical power play has been global energy security.

Before the war, a barrel of Brent crude oil traded at $70-$72, but within weeks, future prices shot up to $119 per barrel. The prices that buyers were actually paying on the spot market (where oil is bought and sold for immediate delivery) reached $150 at the time, driven by intense panic buying and shortage fears.

The shock was specifically compounded for the United Kingdom, as the European country imports a large portion of its energy. Net import dependency stood at 43.8% in 2024, which means that when global energy prices spike, the UK does not have enough domestic supply to shield itself.

Wholesale gas prices inside the UK surged from 78 pence per therm at the end of February to 171 pence per therm in the weeks that followed. That is more than double in a matter of weeks.

The International Energy Agency (IEA) described what happened as the single most significant supply disruption in the history of the global oil market. Global oil supply fell by over 10 million barrels per day in March 2026 alone.

The ripple effects were felt almost immediately at petrol stations across the UK. The average price of petrol rose from 131.6 pence per litre to 140.2 pence per litre. Diesel jumped from 141.1 pence to 158.7 pence per litre. These were not gradual, creeping increases. They happened within a month.

Inflation is back, and it is stubborn

The official measure of inflation in the UK, known as the Consumer Price Index (CPI), rose to 3.3% in March 2026. That sounds like a modest number until you consider that just two months earlier, the Bank of England (BoE) had been close to hitting its 2% target and was preparing to start cutting interest rates. Those plans are now on hold indefinitely.

The largest driver of the March inflation rise was motor fuel, which went up by 8.7% in a single month. The last time fuel prices rose that sharply in a single month was during the early period of the Ukraine war. Food inflation is expected to follow.

The Food and Drink Federation has warned that food prices could rise by as much as 9% by the end of 2026 if supply disruptions continue. Part of the reason is fertiliser. Producing nitrogen fertiliser requires enormous amounts of natural gas, and many fertiliser suppliers in the Gulf and Egypt can no longer export their products because of the maritime blockade.

British farmers are facing doubled fertiliser costs, and many have decided it is simply not worth planting crops this year. Less domestic food production means more imports. More reliance on imports, in a disrupted global market, means higher prices at checkout.

There is also an unusual and little-discussed risk around carbon dioxide gas, which the food industry depends on for slaughtering livestock humanely, carbonating drinks, and preserving packaged goods.

The government has already invested 100 million pounds to reopen an industrial plant on Teesside specifically to ensure a domestic carbon dioxide supply. Major retailers like Tesco say shortages have not yet reached shelves, but the Food and Drink Federation is not ruling out significant gaps in availability by the summer if the Strait remains closed.

Growth has stalled

Britain’s economy was beginning to recover early in 2026. GDP grew by 0.5% in February, which was a small but encouraging sign. That momentum has now been cut short. The EY Item Club, one of the UK’s most respected economic forecasting bodies, now expects the economy to grow by zero in both the second and third quarters of the year. For the full year of 2026, it has cut its growth forecast from 1.4% down to 0.7%.

Matt Swannell, the Chief Economic Adviser to the EY Item Club, warns that the labour market is entering a period of severe distress. Matt remarked, “Spiralling energy costs and disruption to supply chains will push the UK to the brink of a technical recession… The heightened energy prices from the war are also set to deliver the ‘biggest hit since the pandemic’ to the jobs market, with the jobless rate projected to peak at 5.8% by the middle of 2027.”

The International Monetary Fund has gone further in some respects. It identified the United Kingdom as the country that suffered the biggest downward revision to its growth forecast among wealthy nations in its spring 2026 outlook. The IMF now expects UK GDP to grow by just 0.8% in 2026, compared to 1.3% predicted earlier.

The OECD, another major international economic body, expects Britain to have the second-lowest growth rate and the second-highest inflation rate among G7 nations. The United States, by contrast, is expected to grow by 2.3%. The gap is stark.

Why is Britain being hit harder than most? Several reasons compound each other. The UK is a net importer of gas. It has very limited gas storage, estimated at just two days of supply at the peak of the crisis. Its economy is highly integrated with international trade and supply chains. And its growth was already sluggish entering 2026, leaving very little buffer when the shock arrived.

The word economists are reaching for to describe this situation is stagflation. That is what happens when an economy stops growing, but prices keep rising. It is the worst of both worlds, and it is the same condition that devastated many Western economies in the 1970s during the oil embargo. The last thing any government wants to see return.

Jobs are being lost

Behind the big numbers are real people losing real work. British employers cut 11,000 jobs in March 2026, the first clear month where the economic fallout from the Iran conflict showed up directly in employment figures. Analysts from EY Item Club estimate that approximately 250,000 jobs could be lost by mid-2027 if current conditions persist.

The unemployment rate stood at 5.2% at the start of 2026. Forecasters now expect it to rise to 5.8% by mid-2027, which would mean over 2.1 million people looking for work. That would be the highest level of unemployment in more than a decade.

The sectors bearing the brunt are those that depend heavily on energy or on consumer spending. Manufacturing, hospitality, logistics and construction are all under severe pressure. Businesses that were already operating on thin margins are finding that rising energy costs, supply chain delays, and weakening customer demand are simply too much to absorb simultaneously.

Many companies are moving into what economists call a defensive posture. Instead of hiring, investing, or expanding, they are cutting costs and building cash reserves to survive the uncertainty.

The Deloitte CFO Survey, which measures confidence among finance directors at major British companies, recorded a collapse in sentiment to a net figure of minus 57% in late March. That is the most pessimistic reading since the height of the COVID-19 pandemic.

Consumers are pulling back

Ordinary households are responding to the situation predictably. When things feel financially uncertain and prices are rising, people spend less. Consumer confidence, as measured by the Deloitte Consumer Tracker, fell to minus 14.1% in the first quarter of 2026, its lowest level since 2023.

Spending power is expected to fall by 0.3% across the year for the average household. People are cutting back on things they do not consider essential. Travel has taken a particularly sharp hit. Spending on travel fell by 3.3% in March 2026, the first such decline recorded by Barclays in five years.

Jet fuel prices have more than doubled since the conflict began, and airlines are passing those costs on to passengers. International holidays are being postponed. People are choosing domestic breaks instead, or simply staying home.

The hospitality sector, which was already struggling with the April 2026 increase in the minimum wage and higher business rates, is now facing what industry figures are calling a summer of shortages. Breweries are worried about carbon dioxide availability ahead of the football World Cup in June, usually one of the most commercially important periods in the calendar.

What the government is doing

Chancellor Rachel Reeves has been walking a difficult line. On one side, there is enormous pressure to protect households and businesses from rising costs. On the other hand, the government is painfully aware that uncontrolled spending could damage Britain’s fiscal reputation and push up borrowing costs, as happened during the 2022 mini-budget crisis.

“This is not our war, but it is pushing up bills for families and businesses. That’s why it’s my number one priority to keep costs down… Obviously, no sensible person is a supporter of the Iranian regime, but to start a conflict without being clear what the objectives are… I do think that is a folly and it is one that is affecting families here in the UK,” The Chancellor said.

The approach taken has been cautious and targeted. Rather than offering blanket support to everyone, the government has focused on the most vulnerable. It has extended the existing 5 pence cut in fuel duty, saving the average driver around 90 pounds per year. It is also working on contingency plans for further energy bill support in the autumn, when demand for gas heating typically rises sharply.

To fund these measures, the government has expanded the windfall tax on electricity generators. Companies that generate electricity from gas-linked sources are currently making exceptional profits because of how electricity pricing works in the UK market.

The government has raised the Electricity Generator Levy from 45% to 55%, capturing more of those windfall profits and redirecting them toward household support. This levy has also been extended beyond its original 2028 end date.

The government has explicitly said it cannot absorb every price rise on behalf of the population. It is a difficult message to deliver, but it reflects the reality that with national debt on track to reach 100% of GDP by 2029, the room for large unplanned spending is very limited.

Internationally, Reeves has been vocal in criticising the war itself. She has called it a mistake and a folly, language that puts her at odds with US Treasury Secretary Scott Bessent, who has defended the conflict as a necessary cost for long-term global security.

Reeves led a joint statement signed by finance ministers from 11 countries, including Japan, Australia, Spain, and the Netherlands, calling for a negotiated resolution and the reopening of the Strait of Hormuz. The diplomatic tension with Washington adds another layer of uncertainty to the UK’s economic relationships.

BoE is stuck

Normally, when inflation rises sharply, a central bank’s response is to raise interest rates. Higher rates make borrowing more expensive, which cools spending and helps bring prices down. But the Bank of England (BoE) is in an unusual bind.

Before the Iran conflict, financial markets expected the Bank to start cutting its main interest rate in April 2026, as inflation had been falling toward the 2% target. Now, with inflation at 3.3% and rising, those cuts have been shelved. But the Bank is not raising rates either.

The reason is that the economy is simultaneously weakening. Raising rates aggressively into a slowing economy risks causing a deeper recession. The Monetary Policy Committee has held the rate at 3.75% and is expected to keep it there for some time.

Economists describe this as an unenviable balancing act. If the Bank holds firm, inflation may become entrenched, especially if workers begin demanding higher wages to keep up with rising petrol and food costs. If it cuts rates, it risks fueling inflation further. The most likely outcome, according to analysts, is that rates stay on hold until around mid-2027, when inflation is expected to gradually return closer to target.

For homeowners approaching the end of fixed-rate mortgage deals, this is unwelcome news. Over a million British households are expected to face higher mortgage payments in the coming months as their fixed deals expire, adding to the broader pressure on household budgets.

Industry under pressure

Some of the starkest stories from the current crisis involve British manufacturers. Energy-intensive industries (those that need enormous amounts of gas or electricity to operate) are in genuine difficulty. Steel, chemicals, glass, ceramics, cement, and paper are all facing input cost increases that many cannot absorb or pass on.

The British Plastics Federation has reported that 58% of its member companies are experiencing severe or significant operational impacts. Almost all of its members are reporting rising raw material and energy costs.

Some firms have added surcharges of up to 30% to their prices, which risks sending customers to overseas competitors, particularly American ones, who benefit from access to cheap domestic natural gas and are insulated from the Hormuz disruption.

The construction sector is also struggling. Output had already fallen by 2% in the three months to February 2026, with private housebuilding dropping 6.5%. The conflict has made things worse through supply chain delays and surging material costs.

Bricks, cement, asphalt, and insulation are all more expensive to produce when energy costs are this high. Construction experts have warned that many projects are moving from commercially challenging to commercially unviable.

One of the most unexpected consequences involves renewable energy. Two major offshore wind projects off the Norfolk coast are facing delays because key components, specifically steel turbine foundations and offshore substations, were ordered from suppliers in the UAE. Those components cannot currently be shipped through the Strait of Hormuz. The conflict that is driving demand for cleaner energy is simultaneously delaying the infrastructure needed to deliver it.

Where things stand

Growth has stalled. Inflation is rising. Jobs are being lost. Businesses are pulling back. Consumers are cutting spending. And the root cause of all of it, the blockade of a narrow waterway seven thousand kilometres away, shows no immediate sign of resolution.

What makes the situation particularly difficult is that even a ceasefire would not instantly fix things. Energy infrastructure that has been damaged takes time to rebuild. Supply chains that have been disrupted take months to restore. And business confidence, once lost, is slow to return.

Britain’s vulnerability at this moment reflects structural issues that existed long before the conflict began. The country is too dependent on imported energy. Its gas storage is inadequate. Its industrial base has been gradually hollowing out for decades. The current crisis has exposed all of that with uncomfortable clarity.

The months ahead will be tough, particularly for lower-income households, energy-intensive industries, and anyone whose livelihood depends on consumer spending. The government and the Bank of England are trying to prevent the worst outcomes. But the margin for error is small, and the decisions being made in Washington, Tehran, and on the waters of the Persian Gulf will matter as much as anything decided in Downing Street or Threadneedle Street.

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As the 2026 midterm elections approach, all three of those pledges are far from being fulfilled, and the reason is a collision between two of his own decisions. First is the decision to strike Iran, and the second is taxing imports at the highest rate in more than a century.

The consequences are showing up where voters feel them most directly, at the gas pump, in the grocery aisle, and at car dealerships. Surveys show consumer confidence at record lows. If the pain persists into November, Donald Trump’s Republicans could face a serious reckoning at the ballot box.

A war that reignited inflation

In late February, Donald Trump ordered joint US-Israeli strikes on Iran. Tehran swiftly responded by closing the Strait of Hormuz, the narrow channel in the Persian Gulf through which roughly a fifth of the world’s oil supply passes daily. That one decision triggered an enormous energy price shock that economists say has reversed much of the hard-won progress the United States made on inflation during 2024 and 2025.

Brent crude, the global oil benchmark, surged from about $70 per barrel before the conflict to over $110 at its peak after Iran shut the strait. When Tehran briefly signalled a partial reopening, prices fell below $90, only to climb back above $105 as tensions remained high. The US benchmark, WTI crude, approached $96. As a direct result, US inflation accelerated to 3.3% in March 2026, the highest rate in two years, driven largely by fuel.

The OECD now warns that US headline inflation could hit approximately 4.2% in 2026, up from a previous forecast of just 3%.

The IMF’s managing director, Kristalina Georgieva, has described the situation as a “reversal” of what had been a positive trajectory for prices. Simply put, two years of painful interest-rate increases to bring inflation under control have been significantly set back in a matter of weeks.

Gas prices as political poison

Since the Iran strikes began, pump prices across the United States have risen by roughly 50 cents per gallon, with station price boards changing numbers almost daily in some areas. In California, the average has already crossed five dollars per gallon.

Nationally, analysts expect average US gasoline prices to head toward three dollars fifty if oil stays above $100. The national average was already at $4.16 per gallon on April 8, up from $3.25 just a month earlier, according to AAA data.

Polling shows that voters are angry and anxious. A Reuters/Ipsos survey in early March found that 67% of Americans expect gas prices to get worse over the next year as a result of the Iran campaign.

That fear cuts across party lines. Over 44% of Republicans and 85% of Democrats share it. Only 29% of respondents approved of the strikes at all, and 64% said Trump had never clearly explained what the United States was trying to achieve.

A separate Pew Research survey later in March found that 69% of Americans were worried about rising fuel costs from the conflict. Nearly six in ten Republicans told Pew that gas prices were their biggest concern about the war, while close to eight in ten Democrats said the same.

That bipartisan pain matters enormously heading into November. When a President’s own supporters feel the squeeze at the pump every time they fill their tank, the political shelter that wartime solidarity usually offers starts to crack. Inflation, unlike foreign policy abstractions, is something voters experience personally and remember when they vote.

More than petrol

The disruption to the Strait of Hormuz has inflicted damage well beyond fuel prices. Oil is a raw material for plastics, fertilisers and chemicals, so when its price spikes, the cost of hundreds of everyday products rises in turn. Shipping routes have been disrupted, adding delays and costs throughout global supply chains.

Researchers at the Dallas Federal Reserve modelled the inflation impact depending on how long Hormuz stays restricted. If it remains closed for one quarter, it adds roughly 0.35 percentage points to 2026 inflation.

Two quarters of closure add 0.79 percentage points. Three-quarters would add approximately 1.47 percentage points on top of existing pressures. These figures translate directly into higher prices on goods ranging from groceries to building materials, even if the war itself ends.

OECD economists also note that because of the way prices ripple through supply chains, households will still be feeling the effects in rent, transport costs and consumer goods as they head to the polls in November.

The tariff tax

The Iran shock is not arriving in a vacuum. It is hitting on top of a separate cost increase that Donald Trump himself created. Namely, his sweeping tariff programme, which has imposed taxes on imported goods at levels the United States has not seen in over a hundred years.

When Trump’s second term began, the average effective tariff rate, the actual percentage tax paid on imports, stood at roughly 2.5%. By April 2025, it had jumped to an estimated 27%, the highest in more than a century.

Legal challenges and negotiated deals have since brought it down to approximately 11.8% as of early 2026, with CNN tracking the effective rate at around 16.8% by the end of 2026.

Even at those reduced levels, the tax burden on imported goods is vastly higher than anything Americans faced before Trump’s second term. Initially, companies absorbed most of the extra costs rather than passing them on to shoppers.

In 2025, the US government collected roughly $187 billion more in tariff revenue than in 2024, almost a 200% increase, and businesses covered an estimated 80% of those costs internally. But that cushion is being depleted.

JPMorgan analysts and industry consultants warn that the corporate share of these costs could fall to around 20% in 2026 as pre-tariff stockpiles run out and businesses begin repricing. The bill is now migrating to household budgets.

What does it cost a family

Research by the Centre for American Progress, drawing on Harvard Business School analysis, found that between October 2024 and March 2025, prices of everyday nondurable goods such as cleaning products and toilet paper rose approximately 5%.

Furnishings climbed around 8%. Clothing jumped roughly 14%. A Yale Budget Lab estimate puts the ultimate annual cost to the average US household at approximately $1,700 once tariffs are fully passed through.

Food is now entering the pressure zone as well. Tariff effects typically take 12 to 18 months to work through to consumer prices fully, meaning peak pressure will fall between April and October 2026, right in the heart of election season.

Food prices were already up 2.9% year-on-year in January 2026. Yale’s modelling implies an effective annual food cost increase of around $1,500 for a typical household once tariff effects are fully felt. Combined with higher fuel bills, those numbers become punishing for families already stretched thin after years of post-pandemic inflation.

The sharpest tariff increases fall on metals, vehicles, electrical equipment and computers, raising the cost of cars, appliances and new home construction. Consumer goods with thin margins and heavy import dependence, such as coffee and fresh produce, have seen particularly sharp price swings.

For a middle-income family, the combined effect feels less like an America-first economic strategy and more like being squeezed from every direction at once.

Collapsing confidence

The University of Michigan’s Index of Consumer Sentiment, one of the most closely watched measures of how Americans feel about the economy, fell to a record low in April 2026. The US dollar has also weakened to its lowest point in four years.

While a weaker dollar helps American exporters, it also makes imported goods more expensive, piling onto the inflation already generated by tariffs and the energy shock. JPMorgan Chase chief executive Jamie Dimon, writing in his annual shareholder letter on April 6, laid out the compounding risk in stark terms.

“Now, because of the war in Iran, we additionally face the potential for significant ongoing oil and commodity price shocks, along with the reshaping of global supply chains, which may lead to stickier inflation and ultimately higher interest rates than markets currently expect,” said the document.

Donald Trump’s standing on the Iran conflict itself remains fragile. The same Reuters/Ipsos poll showing only 29% approval for the strikes found that roughly two-thirds of respondents felt the administration had never given a clear picture of what military victory was supposed to look like. When people see their purchasing power shrinking without a clear benefit to offset that sacrifice, frustration tends to find expression in protest votes, especially in the tightly contested districts that decide control of Congress.

Running out of road

Donald Trump could still seek a diplomatic de-escalation with Iran, but after framing the military campaign as a defining test of American resolve, any visible retreat risks being labelled as capitulation.

He could roll back tariffs to ease household budgets, but that would contradict a central pillar of his economic philosophy and anger the constituencies that have benefited from protection.

The White House has already quietly delayed planned tariffs on some furniture and Italian pasta in early 2026, a move analysts read as political damage control rather than principled policy. Wall Street has coined the nickname “TO,” standing for “Totally Chicken Out,” for the administration’s pattern of pulling back from tariff threats whenever markets or polls react badly, suggesting investors see trade policy as more performative than strategic.

Piecemeal retreats like these, however, may not be sufficient to change how voters feel about their household bills by November.

The Dallas Fed’s research suggests that even a relatively brief Hormuz disruption will keep inflation elevated through the end of 2026. The 12-to-18-month lag for tariff pass-through means price pressures will be near their peak immediately before Election Day.

Independent analysts estimate that Donald Trump’s combined policies will cost typical households between $1,500 and $1,700 per year. Consumer sentiment is already at a record low. Neither has the conflict toppled Iran’s leadership, nor has it delivered the concessions the White House sought.

However, the combined arithmetic of oil shocks and tariff costs is already eroding Trump’s standing at home, and as November approaches, his most dangerous political adversary may not be a foreign one, but the monthly household budget.

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The core problem is a combination of rising energy costs and shaky consumer confidence. Oil prices have surged to an average of $103 per barrel, while natural gas, which powers homes and factories across Europe, is trading at €55 per megawatt-hour. These are not abstract numbers. When energy gets expensive, it costs more to produce goods, transport them, and heat homes. Businesses hold back on investment. Families spend less. That chain reaction is precisely what Italy is experiencing right now.

Consumer price inflation, the rate at which everyday prices rise, is expected to hit 2.6% this year as a direct result of these commodity spikes. To put that in plain terms, goods and services that cost €100 last year will cost around €102.60 this year. The bank projects inflation will ease below 2% by 2027 and 2028, provided that energy prices gradually fall as futures markets currently suggest.

Geopolitical instability, particularly the ongoing conflict in the Middle East, adds another layer of risk. In a worst-case scenario where hostilities drag on, Italy’s 2026 growth could shrink by a further 0.5 percentage points, and 2027 could lose a full percentage point off its forecast, a significant blow to an already fragile recovery.

There are some bright spots. The labour market remains relatively stable, wages are growing, and the bank expects a slow recovery to begin in early 2027 once inflationary pressure eases. However, Italian manufacturers face stiffening competition from cheaper Chinese goods, which limits their ability to grow.

The Banca d’Italia is urging policymakers to pursue productivity reforms and keep a close watch on global risks before conditions worsen further.

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