Chancellor Rachel Reeves is facing a perfect storm of volatile oil prices, political pressure, and the stark economic fallout from the Middle East conflict, with her government’s planned fuel duty increase now under intense scrutiny. The price of Brent crude, a global benchmark, soared as high as $119.50 a barrel this week following the outbreak of war, injecting fresh uncertainty into household budgets and economic forecasts.
The Chancellor indicated that all fiscal measures are being kept under review as she faced questions in the House of Commons. She stated that the current price of petrol is already 8 pence per litre lower than it would have been under previous Conservative government plans, a figure she said would rise to 11 pence lower from April. “Of course, we keep these things under review,” she said, while emphasising that the “most important thing we can do to address the cost of living challenges people face is to de-escalate the conflict in the Middle East.”
The Geopolitical Spark and Economic Shock
The surge in oil prices is directly linked to the escalating war and its impact on one of the world’s most critical shipping lanes. The Strait of Hormuz, through which approximately one-fifth of global seaborne crude oil passes, has seen severely reduced traffic, threatening prolonged disruption to energy supplies. Major regional producers are reported to have cut production due to export constraints.
This geopolitical shock has immediate domestic consequences. The British Chambers of Commerce (BCC) has warned that UK inflation, already expected to remain above the Bank of England’s 2% target, could be pushed higher for longer. It forecasts a slowdown in economic growth for 2026, revised down to 1.0%.
In response to the crisis, the UK has deployed military assets to the region. The Ministry of Defence confirmed that the Type 45 destroyer HMS Dragon is being sent to the eastern Mediterranean to bolster defences for Cyprus, home to two UK sovereign bases. This follows criticism from Cyprus about the speed of the UK response. France has already deployed its Charles de Gaulle aircraft carrier to the area.
Pressure Mounts on Fuel Duty and Mileage Rates
At the centre of the political debate is a scheduled 5 pence per litre increase in fuel duty, set to begin in September 2026 as the government unwinds a temporary cut introduced in 2022. Official policy papers state the increase will be gradual, avoiding a 5 pence hike in March 2026, with rates returning to March 2022 levels by March 2027. The planned inflation-linked rise for 2026-27 has been cancelled, a move the government says will save the average driver £49 that year.
Opposition parties are demanding a reversal. Conservative leader Kemi Badenoch accused Labour of planning a tax hike “at the worst possible moment,” while Liberal Democrat leader Ed Davey called for the Cobra emergency committee to be convened. Reform UK leader Nigel Farage, speaking at a petrol station, pledged to scrap “lunatic net zero levies” like heat pump subsidies to fund a reversal of the duty rise. “If Reform were in government, it would never have happened,” he and Treasury spokesperson Robert Jenrick wrote.
Alongside fuel duty, the Chancellor is facing calls to update the Approved Mileage Allowance Payment (AMAP) rates, frozen at 45p per mile since 2011. Reeves acknowledged to MPs that “motoring costs have evolved significantly” and said the issue was being looked at for consideration at a future fiscal event. Former Labour minister Jim McMahon stated current costs of running a car are now estimated at about 67p a mile.
Rural Communities and Heating Oil Crisis
The energy price shock is being felt acutely in rural areas, where an estimated 1.7 million households rely on heating oil, a form of kerosene not covered by the Ofgem price cap. Examples seen by the Guardian show prices have nearly trebled since the conflict began, from around 62p per litre to quotes of £1.73, with some customers facing cancelled orders and supply difficulties.
Reeves told Parliament she recognised the “unique challenges” for these households and officials would meet rural and Northern Ireland MPs to explore “further action.” The issue was highlighted in a report by the cross-party Labour Rural Research Group, which called for fuel poverty interventions to be better targeted at off-grid homes.
The group’s report also urged long-term funding for rural public transport, a “Rural Basket Delivery Guarantee” from supermarkets, and for in-work support to reflect the seasonal incomes common in rural economies.
Market Volatility and Government Readiness
Global oil markets have experienced extreme volatility. Prices slid back to around $91 a barrel after former US President Donald Trump described the war as “very complete, pretty much,” highlighting how sensitive trading is to geopolitical statements. The RAC has warned UK pump prices are likely to keep rising.
Following a call with G7 counterparts, Chancellor Reeves said she was ready to support “a coordinated release” of international oil reserves to ease the economic shock and called for action to guarantee security for vessels in the Strait of Hormuz. Prime Minister Keir Starmer has vowed ministers would seek to “get ahead” of the potential impacts of a prolonged conflict on inflation and mortgages, acknowledging it would affect “the lives and households of everybody.”
As the government monitors the situation, the intertwined crises of geopolitics, energy security, and household finances are set to define the Chancellor’s upcoming fiscal decisions, with motorists, rural communities, and the broader economy awaiting her next move.
