Rachel Reeves issued a warning today about the potential impact of the US-Iran conflict on the UK’s economy, highlighting that it could cause inflation to rise, particularly affecting fuel prices.

Addressing the Commons, the Chancellor expressed her willingness to support a coordinated international release of oil reserves to help mitigate the economic impact resulting from the tensions following the attack on Tehran and subsequent retaliations against UK allies in the Gulf.

She urged both parties to pursue ‘de-escalation’ to prevent global economic disruption.

Amid concerns that the conflict in the Middle East could drive fuel prices to unprecedented levels, UK citizens are being advised to reduce their car usage, with predictions that petrol prices could soar to £2 per litre.

Reports suggest that Saudi Arabia, the leading oil producer in the region, is reducing output at two significant fields, indicating potential consequences of the ongoing hostilities.

The price of crude oil has surged above $100 per barrel for the first time in years, as attacks continue to threaten the infrastructure of key oil producers in the area.

Iran has also managed to effectively shut the Strait of Hormuz, through which around a fifth of the world’s oil travels. 

The AA and RAC have advised drivers to cut non-essential journeys and avoid harsh acceleration and braking to conserve fuel. 

The Chancellor followed Sir Keir Starmer in trying to calm markets and consumers, but told MPs: ‘The movements that we have already seen are likely to put upward pressure on inflation in the coming months.’

Any spike in inflation would also lessen the chance of interest rate cuts by the Bank of England, delivering a blow to homeowners with mortgages.

The Chancellor told the Commons she stands ready ‘to support a co-ordinated release’ of international oil reserves to ease the economic shock of the crisis

Ms Reeves said she is ‘taking action to ensure that people pay the lowest possible price at the pump’, amidst the ongoing conflict in the Middle East.

She also promised MPs would get a meeting focused on heating oil prices.

In a statement to the Commons on the Middle East, she said: ‘I recognise that households who use heating oil face unique challenges, and so I have asked the Financial Secretary to the Treasury to lead discussions with officials and with rural and Northern Irish MPs to explore further action that we can take, and those meetings will happen on Wednesday.’

Ms Reeves pointed to cuts in fuel duty, adding: ‘I am also taking action to ensure that people pay the lowest possible price at the pump.’

‘The new cheap fuel finder that I confirmed at the budget is currently being delivered, helping consumers find the cheapest price for their fuel. Almost 90 per cent of petrol retailers have already registered for this and last week, I instructed my officials to accelerate the integration of the cheaper fuel finder with map applications.

‘This week, I am meeting with petrol forecourt operators, and I will not hesitate to call out retailers who fail to provide data to the fuel finder. I am clear that the best way to keep prices at the pump low is rapid de-escalation, and I will continue to monitor prices as the situation develops.’

Keir Starmer is desperately trying to calm fears of another 2022-style cost of living squeeze, hinting at another bailout despite the fragile state of the government’s finances. 

On a visit to a community centre in London this morning, Sir Keir insisted the economy is more ‘resilient’ than when Russia’s full-scale invasion of Ukraine cause havoc four years ago.

But he conceded that the longer the war goes on ‘the more likely the impact on our economy’, urging ‘de-escalation’. 

Sir Keir is also scrambling to limit damage to the Special Relationship from his refusal to back Donald Trump’s decision to launch the war on Iran.

The president has dismissed the soaring oil and gas prices saying they are a ‘small price to pay’ for taming Tehran. 

Mr Trump wrote on his Truth Social site: ‘Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay U.S.A., and World, Safety and Peace. ‘ONLY FOOLS WOULD THINK DIFFERENTLY!’

The price of a barrel of Brent crude was nearly 30 per cent higher in Asian markets at some points overnight, as traders concluded that the crisis will drag on.

It took just a minute for the price to rise by 10 percent, and 15 minutes for another 10 percent, seeing it surge beyond the $100 mark for the first time since the early days of Russia’s invasion of Ukraine in 2022.

The Treasury’s OBR watchdog forecast just last week that prices would average $63 a barrel over this year. 

But a defiant Mr Trump wrote on his Truth Social site: ‘Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay U.S.A., and World, Safety and Peace.

‘ONLY FOOLS WOULD THINK DIFFERENTLY!’ 

On his visit this morning, Sir Keir struck a different tone, saying he was looking at ways to ‘reduce the likely impact’. 

‘The job of government is obviously to get ahead, to look around the corner, to work with others, and the Chancellor speaks to the governor of the Bank of England on a daily basis, with looking cross-departmental within government, assessing the risks, monitoring and talking to our international partners as well about what more we can do together to reduce the likely impact on people here and businesses here, of course,’ the premier said.

‘But it is important to acknowledge that that work is needed, because people will sense, you will sense I think, that the longer this goes on, the more likely the potential for an impact on our economy, impact into the lives and households of everybody and every business.

‘And our job is to get ahead of that, to look around the corner, assess the risk, monitor the risks, and work with others in relation to that.’