Iran war: The outlook for your finances - whether hostilities end or not

Donald Trump has raised hopes several times that the US-Israel military strikes on Iran may soon be over.

But as we enter the third week of the conflict and its effects rage across the wider energy-rich Middle East, financial markets are reflecting nerves over the growing impact on the global economy.

Brent crude oil prices are now stuck firmly above $100 a barrel - up more than $30 in the month to date.

Iran war latest: Trump threatens NATO

Attacks by Iran on oil and gas and other infrastructure continue, despite US claims to have inflicted heavy damage on Tehran's missile and drone capabilities.

Here, Sky News explains how you will be affected.

Oil

This chart tells you all you need to know.

Any spike in global oil prices takes time to filter through fully. Black gold, as it is known, might be the enemy for the health of our planet, but it remains the crucial cog for the health of the global economy.

Oil prices will only recover to pre-war levels when Middle East output and deliveries through the key Strait of Hormuz have resumed.

The trouble here is that the biggest production sites for oil, and natural gas too, in the region have been shut down and it can take weeks to safely restart operations following any suspensions.

It means that an end to the war is not necessarily a quick fix for oil prices, with deeper consequences ahead. More on those later.

Fuel

This is where we have first seen the effects of rising oil prices.

The old saying goes that UK fuel prices are quick to rise and slow to fall.

Rewind to Monday 2 March - the first chance financial markets had to react to news of air strikes on Tehran the previous Saturday - and the Brent crude oil price rose by about $5 to almost $78 a barrel by the close.

Sky News was told that UK wholesale costs had risen by 2p a litre that Monday night. For diesel, it was 7p.

According to RAC data, average pump costs on 15 March saw diesel at its highest since 11 November 2023 at 160.6p - up 18p (13%) in the war to date.

Petrol was at its highest since 29 August 2024 when it was 141.5p - up almost 9p (6.5%).

The motoring group believes more increases are on the way as forecourts are restocked with more expensive fuel.

The price picture is not helped by the fact that the pound has fallen in value versus the oil-priced dollar.

The government and Competition and Markets Authority have warned the industry against profiteering - building on the regulator's consistent fuel market findings that drivers have been paying over the odds for years.

Heating oil

This is the lifeblood of the UK's rural communities and there is no price cap in place to shield users from price spikes.

Inevitably, the cost of heating oil (kerosene) for new deliveries has risen as oil costs have gone up but they have doubled, prompting the government to intervene with £53m of financial aid for the poorest households.

As with fuel prices, users are being urged to shop around if they need a delivery.

Household energy

Here is where the news is a bit less painful.

The energy price cap shields households on that default tariff from any immediate shocks in the global energy markets.

The level for April through to the end of June has already been set - at £1,641, it is £117 down on an annual basis for the average user of gas and electricity paying by direct debit.

However, current market prices are already influencing the calculations for the next cap level which will be set in May for July-October. Forecasts last week, before we saw the big spike in natural gas costs of up to 100%, indicated a 10% rise to £1,800 was possible.

If you are on a fixed rate deal that is ending, as of Monday 16 March there were still eight offers in the market that were coming in below an average annual £1,640 according to Uswitch.com - just beating the predicted price cap level due to begin at the end of the month.

What it all means for inflation

A quick recap.

The UK's consumer prices index (CPI) measure had been widely expected to tumble from its current level of 3% to around 2% within the next few months - mostly because of easing energy costs.

Chancellor Rachel Reeves has since acknowledged there will now likely be upward pressure on the pace of price growth in the economy due to the war-led energy spike.

Forecasts by Pantheon Macroeconomics released last week saw CPI now hitting 3.3% by the year's end - 0.5 percentage points above the level expected before the hostilities began.

Those elevated energy costs will not only feed into the cars we fill with fuel and our household energy bills but the prices factories face for raw materials and cost of manufacture.

Add to that the higher cost of delivering those products by air, sea or road due to higher fuel costs. It all adds up.

Does this threaten an interest rate rise?

The Bank of England uses tools, including interest rates, to help keep the pace of inflation in check.

Since Russia's invasion of Ukraine, rates have been elevated to help keep a lid on price growth.

The prospect of a fresh energy-led lift to inflation means the Bank, which had been expected before the war to cut Bank rate from 3.75% to 3.5% this week, is now widely predicted to hold off.

LSEG data shows markets are currently almost pricing in a single increase by the end of the year instead.

What effects has this had?

We've seen many hundreds of fixed-rate mortgage deals pulled and others repriced higher, reflecting that shift in sentiment over interest rate prospects.

Data from Moneyfacts on Monday 16 March showed that the average new five-year fixed rate and average two-year rates were now firmly above 5%, at 5.19% and 5.1% respectively.

Lending costs for banks themselves have risen on the back of the market mayhem, alongside government borrowing costs.

What about pensions and investments?

Private pension values and vehicles such as stocks and shares ISAs have taken an inevitable hit from the turmoil.

Both will be heavily exposed to the FTSE 100. The index is currently more than 5% down on the month but it remains 4% above where it started the year.

Lale Akoner, eToro's global market analyst, told Sky News on the temptation to react: "For everyday investors, the key point is that geopolitical shocks often create short bursts of volatility rather than long-term damage to markets.

"Trying to react quickly to headlines can often do more harm than good. Instead, investors should focus on staying diversified and keeping a long-term perspective.

"Periods like this can actually highlight the value of having exposure across different sectors and regions, as energy stocks and defensive companies often perform better when oil prices rise and uncertainty increases."

Read more from Sky News:
How UK might try to keep the Strait of Hormuz open
Why the Iran war will help fund Russia's assault on Ukraine

What have we learned?

The war is having a real cost impact on the UK already.

Fuel, heating oil and new fixed mortgage rates are all up.

How long the war lasts will determine the path for prices ahead but even a truce will not result in any quick fix.

Yes, things like new maritime insurance premiums may come down immediately, but it will inevitably take months for shipping, energy output and deliveries to return to pre-war levels, with price growth pressures potentially taking longer to disperse through supply chains.