Why Britain is the sick man of the global oil shock
Britain’s indecisiveness leaves us dangerously exposed to further price shocks, writes Mykola Kuzmin
The idea that Britain will glide through 2026 with falling inflation, easing rates and stable energy prices is already unravelling. With oil now surging towards $200 a barrel, the Chancellor faces a far more dangerous reality.
The British economy’s “Goldilocks” scenario was destroyed somewhere between Kharg Island and Ust-Luga, a burning Baltic terminal. Last week, Dated Brent, the benchmark that reflects physical oil prices paid by refiners, reached $141 – the highest level since 2008.
Russian seaborne exports have decreased by 43 per cent weekly as a result of repeated strikes on Primorsk and Ust-Luga, with an additional 17 per cent of refining capacity down. Looking at the Middle East, things don’t look too hopeful in terms of capacity, with Saudi Arabia’s East-West Pipeline now operating at a maximum capacity.
The 2026 disruption has impacted more crude from open trade than any of the major oil shocks that have occurred since 1973, including the Gulf War and the invasion of Ukraine. The embargo of the 1970s tripled prices and removed 4.5 mb/d from the market; at its peak, this removed something closer to 17 mb/d.
The effects are already hitting home. Average UK diesel has hit 185p a litre, up 30 per cent since 28 February, with motorway sites clearing 200p and a forecourt on Sloane Avenue charging £3 a litre. Haulage costs will add 0.5 per cent onto food inflation by June, and headline CPI is set to jump 1.2 per cent this quarter.
With UK consumers absorbing the hit, the Treasury cannot afford a blunt response. A universal fuel duty cut would risk reigniting inflation and unsettling bond markets, however, the indecisiveness leaves Britain dangerously exposed to further price shocks.
Rachel Reeves should act decisively. The most sensible policy action taken by the Treasury is a surgical two-pronged strike: forcefully establishing a targeted commercial diesel rebate exclusively for the haulage industry, while discreetly introducing a “Hacienda-style” call-option hedge to safeguard the national budget. Without going against her fiscal guidelines, the Chancellor is able to protect Britain’s vital supply lines and prevent the energy crisis from affecting core food costs thanks to her financial engineering.
This is the section that the front pages consistently lack: in early April, Citrini Research dispatched an analyst to the Musandam Peninsula, placed him on a speedboat 18 miles off the Iranian coast, and counted about 15 ships passing through the strait on 2 April alone. Up to half of all traffic went dark on AIS in order to evade the Qeshm channel.
This poses a major question: what became of the British national idea that “we have no eternal allies, and we have no perpetual enemies”, as stated by Lord Palmerston in 1848? It is our responsibility to uphold our eternal and immortal interests. Ten nations have come to the conclusion that the diplomatic inconvenience of working with Tehran is worthwhile in order to secure their own energy supplies. In an era of energy disruption, hesitation carries a cost and Britain may be about to pay the price.
Mykola Kuzmin is operations manager at The Henry Jackson Society