The situation is expected to worsen before any improvement is seen—an assessment shared by market experts, and unfortunately, it appears to be accurate.

The key question is: just how severe will the situation become? How does the current oil and gas crisis stack up against past energy disruptions?

While significant uncertainties loom, there is a historical framework that can help us understand this crisis. It mirrors the aftermath of Russia’s invasion of Ukraine four years ago.

In essence, the economic consequences are likely to be similar to those experienced then, assuming a relatively swift resolution. However, if the conflict drags on into the summer, the repercussions could be far more severe than those seen in 2022.

Should a lasting ceasefire be established soon, the global economy might weather the storm reasonably well. Whether the UK can do the same remains uncertain.

Reflecting on the past, four years ago, there were serious concerns about Europe’s ability to secure enough gas to endure the winter. At that time, Russia was responsible for nearly half of the EU’s gas imports and a quarter of its oil supplies, raising fears of a potential energy crisis that could leave Europe in the cold.

Concern: There have been horror stories of oil going to $150 a barrel as the Iran war continues

Well, it didn’t. It scrabbled though, partly because it kept on importing some gas from Russia and partly because it bought more liquefied natural gas from the rest of the world.

But prices soared and hit countries, including the UK, which didn’t import gas from Russia.

So the blow to us was via higher gas bills, and electricity bills too, as a lot of our power comes from gas-fired generating stations.

We also had higher petrol and diesel prices, for oil on the Brent tally went up from about $70 a barrel to over $100 a barrel – pretty much as it has done over the past month.

Getting through 2022 was difficult. The sharp rise in the gas price pushed up the cost of food, because natural gas is the key feedstock for fertiliser. Inflation went to double digits, which was deeply painful.

But it wasn’t a catastrophe. Growth in the economy, which had been recovering from the pandemic, did stall in 2023, but we avoided a recession and unemployment remained low.

What is happening now is not an exact parallel. Some aspects are less favourable, some more so.

The Middle East is a far bigger producer of oil and gas than Russia, and there have been horror stories of oil going to $150 a barrel. The squeeze on gas supplies is already hitting fertiliser prices.

But I have not seen a single forecast that suggests we will get a surge in inflation to anything like the 11 per cent peak seen in October 2022. Top-end estimates are 5 per cent or thereabouts. What worries me is something different. It is that we are weaker than we were four years ago.

The budget deficit was about the same, about 5 per cent of national output or gross domestic product, for then we were still recovering from the impact of the pandemic.

But the cost of financing the debt was far lower. Interest rates were rising fast through 2022 and there was the ill-fated Liz Truss premiership in September. But by the end of 2022 the ten-year yield on Government bonds – gilts – was only about 3.5 per cent.

On Friday afternoon it went over 5 per cent. That is its highest since 2008, when Alistair Darling was Chancellor, and well above the level at the peak of the Liz Truss crisis. It is also the highest of any large developed country.

The story gets worse. In December 2021, ahead of the Russian invasion, we had inflation of 5.4 per cent. That was a lot lower than the US and only just above Germany, though higher than the other G7 nations.

Last year UK consumer prices were up 3.4 per cent, well above the rest of the G7.

The markets predict that the next move of interest rates will be up, not down.

This is going to be tough. How tough depends on how long the war lasts and how much damage is done to the Middle East’s oil and gas production, including that of Iran as well as the Gulf States and Saudi Arabia.

Coping with difficult times requires you to have a Government with sound finances, and it is much easier to fend off higher energy costs if your underlying inflation is low. Sadly, we can lay claim to neither.

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