From petrol to pasta: how war in Ukraine is hitting British pockets

But how will this hit the cost of living in the UK – and are we yet to see the worst of it?

What does Russia-Ukraine’s impact on energy prices?

Even before the Ukraine crisis, the UK was struggling with massive rises in energy prices.

A cold winter in 2020 left Europe’s natural gas stocks lower than usual, and a less windy summer in 2021 meant reduced generation from renewables.

The impact of reduced supplies has been exacerbated by increased energy demand in Asia as many industries recover from the peak of the pandemic.

Ofgem announced that it will allow the energy price limit to rise by 54% from April to October.

As a result, experts estimate that the average UK household will experience a jump from £1,277 to £1,971 per year in energy bills.

Wholesale gas costs have rocketed in recent months – rising by over 500 per cent in under a year, leading 29 suppliers to go bust since August 2021, in addition to Bulb entering special administration in December.

Analysts at the Investec banking group have even warned that annual bills could rise to £3000 when the energy cap is once again reviewed in October.

While the government has announced loans of £200 to help people cover their rising energy bills, commentators such as Martin Lewis, the founder and chair of Money Saving Expert, have been vocal about such measures being inadequate.

He told the Commons’ business committee this week that: “£350 worth of help of which £200 is questionable, to cover a £1,300 rise [in energy bills]… you don’t need to be the Money Saving Expert to work out, no, that is not enough”.

While Russia only supplies 4 per cent of the UK’s gas imports, the country’s position as the second-largest gas producer and largest exporter of hydrocarbon means its activities highly influence the global market.

While Europe has not yet sanctioned Russian gas exports, it is possible that Russia could leverage the EU’s dependence on its energy exports to gain leverage in future negotiations. This possibility, along with uncertainty over possible sanctions, means that the market is already in freefall in preparation for further disruption.

Just yesterday wholesale UK gas prices jumped by 18 per cent after Putin announced that Russia will only accept just Roubles as payment from “unfriendly” states in response to sanctions.

Although the UK government is currently looking at North Sea oil, gas, and even Fracking as a means to increase domestic energy supply it could take many decades to get new production started.

How will the war affect petrol prices?

Fuel costs were also rising before the outbreak of war in Ukraine and they are likely to continue rising as the conflict continues.

Record highs are currently being set by the average prices for petrol at 167.03p per Liter and diesel at almost 178.17p.

The RAC Foundation estimates that the 5p cut in fuel duty announced in the chancellor’s spring statement will slash about £3 off the typical filling of a 55-litre family car. Drivers will be happy to see a decrease in fuel prices, but most people don’t think the measures go far enough.

Nicholas Lyes, RAC’s head of policy, warned that retailers might not allow customers to feel the benefit of the cut by maintaining their prices the way they are.

Although the UK does import no Russian oil in any significant capacity, higher international oil prices will impact British consumers, particularly if sanctions on hydrocarbons increase.

Russia is the world’s third-biggest oil producer, making up around 11 per cent of global exports.

Russia’s deputy prime minister Alexander Novak has warned that the benchmark per barrel price of Brent crude oil could rocket to $300- from the current average of around $120-should NATO and its allies ban Russian oil imports.

While statements made by Russian officials should be taken with a grain of salt, it is evident that prices will rise rapidly if sanctions-hit hydrocarbon imports are affected.

How could war increase food prices?

Prices for food and drinks are already increasing in the UK. However, the Russian invasion will only make things worse.

Both countries are important grain exporters. Ukraine is crucial in global supplies both of sunflower oil and rapeseed oils.

With all Ukraine’s commercial shipping suspended indefinitely there is no telling when its exports will be restored to pre-war levels, if ever.

Last year’s wheat harvest issues in Canada meant that pasta prices were already pushed up sharply, rising by 26 per cent in December 2021.

Naturally, the price for products in which sunflower and rapeseed oils are key ingredients will increase, as will spreadable butter substitutes or sauces.

If current conditions continue or worsen, prices for staple foods like pasta and bread will continue to rise in the UK and around the world. As Ukraine’s supply of vital elements of food production declines, the prices of key ingredients such as fertilisers and animal feeds continue to rise. Price rises will also be caused mainly by Russia’s interruption to exports of raw material, including potash for fertiliser productions.

Problems with fertilizer manufacturing will also have an impact on CO2 gas supplies, which are vital for the production of carbonated beverages.

The UK’s relatively strong initial bounce back from Covid was driven by an uptick in household consumption. However, the unravelling of geopolitical risk following Russia’s invasion of Ukraine has already thrown a hefty spanner in the works.
The war’s long-term impacts aside, it is clear that both businesses and consumers will feel the need to curb or delay spending as prices continue to climb, and uncertainty grips the outlook for the rest of the year and beyond.