Sir Keir Starmer has warned that this week’s explosive developments in the Middle East will deal a blow to the cost of living for ordinary Britons. Speaking ahead of his arrival in Canada for the G7, the Prime Minister voters will be seeing “the impact already on the economy and on oil prices.”
Israel’s strikes on Iran, and the subsequent response by Tehran on Friday evening, sparked a surge in oil prices by around 7%. This has already prompted concerns about the cost of petrol, energy prices and food. The chaos in the Middle East is on course to be yet another setback for Rachel Reeves, who used her Spending Review this week to plough cash into the economy in the hope of sparking growth and boosting living standards.
Hard-pressed Britons have barely recovered from the shock of Russia’s invasion of Ukraine three years ago, which also sent energy and food prices skyrocketing.
The international benchmark for oil prices, Brent Crude, shot up more than 10% on Friday before falling to around $75 a barrel.
This jump was the highest daily increase since March 2022, with European gas prices also rising as much as 6.6%.
Though this remains well below the $130 a barrel peak seen in the wake of Putin’s invasion of Ukraine.
David Oxley, at Capital Economics, explained: “A rough rule of thumb is a $10 rise in the oil price would add about 7p to the price at the pump.
Richard Bronze, head of geopolitics at Energy Aspects, said the current situation in the Middle East is “very significant and concerning” for the economy.
Mr Bronze explained that disruption to shipping in the Strait of Hormuz, off Iran’s southern coast, would have wide-reaching implications as it is the global route for nearly 20% of the world’s oil production.
He added: “It’s a narrow choke point so it is a significant weak spot for global oil markets.”
Wall Street giant JP Morgan has more than doubled its chances of a major oil crisis following the exchange of explosives, rising from 7% on Thursday to 17% on Friday.
Francois Savary, chief investment officer at a Geneva-based wealth management firm, described the current economic situation as “dangerous”.
Mr Savary added: “This is one of those situations where everything is under control and then everything is not under control.”
Keir Starmer’s warning about the economy came alongside confirmation he will be ordering British military equipment to the Middle East following Iranian drones landing in Tel Aviv.
Speaking on his jet to Ottawa, Sir Keir was asked whether he will bolster Britain’s presence in the Middle East after Iran called for UK, US and French bases to be targeted.
He said: “These are obviously operational decisions and the situation is ongoing and developing and therefore I’m not going to get into the precise details, but we are moving assets, we’ve already been moving assets to the region, including jets, and that is for contingency support across the region. So that is happening.”
He added that both he and David Lammy have been in contact with countries in the region, including the Iranians, pressing for de-escalation.
The Prime Minister described his phone call with Israeli premier Benjamin Netanyahu as “good and constructive”, which included discussions about the “safety and security of Israel”.