Fuel retailers across the UK are facing increased scrutiny as petrol and diesel prices rise.

It follows the escalation of military action involving the United States and Israel against Iran, with regulators and ministers warning companies not to exploit the crisis to increase profits.

Retaliatory attacks by Iran on shipping in the Straits of Hormuz, preventing oil and gas tankers from sailing through.

The region accounts for over 20% of the world’s crude oil supply.

Consequences

Global oil markets have reacted sharply to the conflict, pushing crude prices above $100 a barrel amid fears that disruption to Middle East supply routes could tighten global energy supplies.

The surge followed Iranian strikes on energy infrastructure and threats to shipping routes such as the Strait of Hormuz, a critical corridor for global oil shipments.

Iranian actions come as a response to heavy military action and bombing by Israel and the US across Iran.

The increase in wholesale oil costs has already begun to feed through to the UK forecourt market.

Petrol prices have risen by around 7p per litre, but diesel has felt the brunt of the increases, rising by almost 16p since tensions escalated, according to industry data.

Earlier this week, the RAC warned that the war in the Middle East could see average UK petrol and diesel prices approach 150p and 180p per litre respectively. 

Under the spotlight

There are increasing concerns for motorists who are already dealing with high living costs.

However, the rapid increase in pump prices has also prompted accusations that some retailers could be taking advantage of the situation.

The UK government has asked the Competition and Markets Authority (CMA) to closely monitor the market amid fears of so-called “price gouging”.

Chancellor Rachel Reeves has warned fuel companies against exploiting geopolitical instability, calling on the regulator to clamp down on what she described as “rip-off” pricing if retailers are found to be raising prices unfairly.

The CMA has already put fuel retailers “on notice”, warning that it is stepping up its monitoring of pump prices and requiring companies to provide detailed data on revenues, costs and sales to assess whether price increases are justified.

Juliette Enser, executive director for markets at the CMA, said: “Whilst price increases might be inevitable because of rising wholesale costs, it is important that those increases reflect genuine cost pressures.

“We will be closely scrutinising and reporting on what’s happening with fuel prices and call out any concerning behaviour. For the avoidance of doubt, the CMA does not set or approve retailers’ fuel prices.”

Prices take off

A key concern for regulators is the possibility of “rocket and feather” pricing, where pump prices rise rapidly when wholesale costs increase but fall much more slowly when those costs drop again.

The watchdog has indicated it will examine how quickly price changes are passed through to motorists.

The scrutiny comes against a backdrop of longstanding concerns about fuel retailer margins in the UK.

Previous CMA monitoring has found that profit margins at petrol stations remain “persistently high” and cannot be fully explained by operating costs, suggesting competition in the sector may be weaker than expected.

According to the regulator, average margins for some retailers remain well above historic levels, with supermarket margins more than doubling compared with levels seen in 2017.

Duty bound

To increase transparency in the market, the government is also pushing ahead with measures such as a new “Fuel Finder” system that allows motorists to compare pump prices in real time and encourages greater competition among filling stations.

Ministers have also signalled that further action could be taken if global energy prices continue to rise.

Options under consideration include delaying planned fuel duty changes or releasing strategic oil reserves alongside international partners to stabilise markets.

The Chancellor, Rachel Reeves, told MPs this week that she will keep the planned hike in fuel duty, set to take effect from September, under review in light of events in Iran.

In the Autumn Budget, Reeves announced that fuel duty will be frozen at its current rate until September 1, 2026, after which it will increase by 1p. It will be followed by a 2p per litre increase from December 1, 2026, and a further 2p from March 1, 2027.

Collateral damage

For motorists and businesses alike, the immediate concern is the knock-on impact of rising fuel prices on household budgets and the wider economy.

Higher fuel costs can increase transport and logistics expenses, pushing up the price of goods and services across the supply chain.

Analysts warn that if tensions in the Middle East persist and oil prices continue to climb, the UK could face renewed inflationary pressure, with forecourt prices becoming one of the most visible indicators of the conflict’s economic impact.

For now, regulators and government ministers are watching the market closely, making clear that while rising wholesale costs may be unavoidable, attempts to profit excessively from the crisis will face strong scrutiny.