The black stuff has come off the boil. Brent crude dipped below $78 a barrel this morning, erasing the war premium that spiked after the Israeli strikes on Iranian facilities last week. The market, in its cold, efficient way, has decided that the Middle East is not, after all, about to boil over into a full-blown regional conflict. Or at least, not one that threatens the Strait of Hormuz.
Jeremy Hunt was quick to claim the spoils. The Chancellor, who has been nursing a fiscal sore thumb every time he fills up his ministerial Jag, called it “welcome relief for motorists and airlines”. Quite right. But let’s not kid ourselves. This is a temporary reprieve, not a structural fix. The global oil market is tight. OPEC+ is still holding back barrels. And the underlying risk of a supply shock hasn't vanished; it has just been pushed further out the curve.
For the UK economy, the immediate arithmetic is simple. A $10 drop in oil prices shaves about 0.3% off the inflation rate over six months. That takes the heat off the Bank of England’s Monetary Policy Committee, which has been sweating over stubbornly sticky service sector inflation. It also gives a modest boost to disposable incomes, which have been battered by the cost of living crisis. But do not mistake this for a green light to splash the cash. The bond market is watching. Gilt yields have already started to creep back up as traders price in a less aggressive rate-cutting cycle. The Chancellor’s “fiscal headroom” is a mirage until the economy can grow its way out of debt.
Airlines and hauliers will pocket the immediate benefit. EasyJet and British Airways saw their shares tick up this morning. But the real structural problem for the UK remains: a chronic lack of investment in domestic energy production and a reckless over-reliance on global supply chains. Every time the world sneezes, the UK petrol pump catches a cold. The Chancellor’s warm words are welcome, but they won’t insulate the economy from the next geopolitical tremor.
The sane response would be to use this window to accelerate homegrown energy, cut red tape for North Sea drilling, and push ahead with nuclear. But this is a government that loves to talk about fiscal discipline while borrowing at 5% to subsidise heat pumps. The oil price drop is a lucky break, not a policy triumph. Enjoy it while it lasts. The next storm is already gathering over the Gulf.
