Ministers are scrambling to deal with the threat of diesel shortages within weeks as experts warn the energy shock from Middle East chaos could be worse than the 1970s.
Keir Starmer and Rachel Reeves are holding crisis talks amid mounting fears over the looming impact from the Iran war.
The Government has admitted it is drawing up contingency plans, despite appealing for Brits to continue their lives as normal. Sir Keir will meet Shell, BP and Norwegian energy company Equinor in Downing Street later to take stock.
But warnings are becoming more stark about the scale of the hit to the UK – and how long it might last – with soaring pump prices just the tip of the iceberg.
A former Bank of England chief cautioned this morning that Iran’s closure of the Strait of Hormuz means a ‘long-term reduction in supply’ and the Government has to look at rationing consumption.
A leading shipping expert pointed out that the world was far more interlinked than at the time of the notorious 1970s energy shock. They suggested shortages of fertiliser could send food prices spiralling and could cause political turmoil in poorer countries.
Keir Starmer is holding talks with business leaders on the Middle East chaos today – as more countries act to ease the pain on drivers
Brent Crude prices ramped up again overnight as Donald Trump hinted he could send in ground troops to seize a key Iranian island.
Fears have been raised that shortages of diesel could start to appear in the coming weeks, as the disruption feeds through into supply chains.
That is expected to be worse affected than petrol which is largely sourced from the US and Norway.
Australia has announced that duty on fuel sold at pumps is being halved for three months. It comes after Ireland, Spain and Poland took similar measures.
But the UK government has so far batted away calls for similar action, and refused to cancel a rise in duty scheduled to take effect in September.
Alongside Sir Keir’s ’round table’, Ms Reeves is having discussions with G7 counterparts later.
She will plead for countries to avoid ‘protectionism’, amid concerns that Britain’s energy imports could be choked off by hoarding of oil and gas supplies.
Former Bank of England deputy governor Howard Davies said with Covid ‘looked as if it was going to be a V-shaped recession once we’d sorted out vaccinations’.
‘In this case it could well be that supplies from the Middle East are constrained for quite a long time,’ he told the BBC.
‘Therefore we may have to live with a higher oil price – perhaps not $150 but certainly higher than the $60 it was when we started – for quite a long period.
‘That requires a plan to increase alternatives and also to reduce consumption. It looks as though we may well have a long-term reduction in supply.’
Lars Jensen, a former director of shipping giant Maersk, said it looked ‘exceedingly unlikely that there is any short-term respite to the flow of goods’ through the Strait of Hormuz.
Asked what governments could do to ease the impact, Mr Jensen said: ‘In reality, not very much. There will be a lot of words but there is very little action that can be taken, because at the end of the day it boils down to whether or not the Iranians want to shoot at ships in the Strait of Hormuz.
‘Any talks about well can we do something on insurance, can we do something about military escorts – all of that is unlikely to lead to a massive change in the risk willingness of the commercial shipping companies.’
Mr Jensen – who now runs Vespucci Maritime – told the BBC’s Today programme that the world must brace for worse because it is ‘only in the beginning of those price escalations’.
‘We need to keep in mind that a lot of the oil that was loaded in the Persian Gulf prior to this crisis is still right now arriving at some of the refineries around the world,’ he said.
‘That will soon stop. So the oil shortages that we have been seeing they are only going to get worse, even if magically the Strait of Hormuz would reopen tomorrow.’
He added: ‘The problem again is the extended supply chain for oil and energy products is measured in many, many months. So as I mentioned, even if you opened (the Strait of Hormuz) tomorrow you are going to feel these higher prices at least for the next six months, if not even more.
‘And that is before we take into account the facilities that have now been physically destroyed in the Persian Gulf.
‘So we need to sit back from a global perspective and start to work around that we will face massive energy costs, not just while this crisis goes on but also for six to 12 months after it is over.’
Pressed whether the energy shock could be comparable to the 1970s, which sparked a global recession, Mr Jensen said: ‘The comparison is easy to make.
‘The problem is it is not quite correct. Because back then the amount of goods – not just oil but also fertiliser, aluminium, all sorts of other products – it was a lot less than what we are dependent on today.
Rachel Reeves will plead for countries to avoid ‘protectionism’, amid concerns that Britain’s energy imports could be choked off by hoarding of oil and gas supplies
‘So the impact we are seeing today is going to be substantially larger than back in the Seventies.
‘I think a lot of people are underestimating what the impact is. We talk a lot about oil, what has me a lot more concerned is fertiliser.
‘You’ve got 20-30 per cent of the seaborne fertiliser in the world originating from the Gulf.
‘This will mean rapidly escalating food prices, especially in poorer countries which typically tends to destabilise such countries.’
