The world is watching on horrified by Russia’s invasion of Ukraine. And even as events unfold far away for many, people are experiencing vicarious trauma.
But the conflict is likely to have some very real economic impacts around the globe, too – with food, petrol and energy bills all expected to rise in the UK.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said if the jumps in oil, gas and electricity products following Russia’s invasion are sustained, it could push inflation to 8.2% in April.
It would only fall back to 6.5% by the end of the year, he added.
In the House of Commons, Boris Johnson acknowledged the invasion would have “global economic consequences”, but said the government “will do everything possible to safeguard our own people from the repercussions for the cost of living”.
The headlines will come as a blow to millions of households in the UK, who are already feeling the squeeze due to the cost of living crisis and April’s fast-approaching energy bills hike.
So, why is the conflict going to impact our bills? And how much could we see them going up by?
Petrol prices
Russia is the world’s second-largest oil exporter after Saudi Arabia and the top producer of natural gas globally. The UK only gets 6% of its crude oil and 5% of its gas from Russia, according to the BBC, but there are concerns sanctions (designed to deescalate the conflict) could actually constrict supplies and drive up prices worldwide.
RAC fuel spokesperson Simon Williams said both petrol and diesel reached new record levels following Russia’s invasion of Ukraine.
“Unleaded is nearly 149.5p a litre and diesel almost 153p,” he said on Thursday, warning that prices could surge higher still.
“Russia’s actions will now push petrol pump prices up to £1.50 very soon. The question then becomes where will this stop and how much can drivers take just as many are using their cars more and returning to workplaces.”
The price of Brent crude oil – an international benchmark – rose to 100 dollars a barrel on Thursday for the first time since 2014. Williams warned this will have a knock-on impact on petrol prices, and that the cost of an average full tank could increase to as much as £88.
“If the oil price was to increase to $110 there’s a very real danger the average price of petrol would hit £1.55 a litre. This would cause untold financial difficulties for many people who depend on their cars for getting to work and running their lives as it would sky rocket the cost of a full tank to £85,” he said.
“At $120 a barrel – without any change to the exchange rate which is currently at $1.35 – we would be looking £1.60 a litre and £88 for a full tank.”
Food prices
Russia and Ukraine export a quarter of the world’s wheat, according to Thomas Pugh, an economist at RSM UK. Ukraine is also a major exporter of corn, with economists warning the conflict is likely to have an impact on food prices across Europe.
Global wheat prices had already been rising prior to the invasion and are are up nearly 40% this year, hitting levels not seen since 2013.
With many manufacturing plants on pause, soybeans also hit their highest prices since 2012 in the hours after Russia invaded, according to Sky News, while corn jumped to an eight-month peak.
The hike in gas prices is likely to impact other foods, too.
“Natural gas is the main component in many fertilisers, so higher gas costs would likely push up all crop prices,” Mark John, Reuters’ European Economics Editor, explained.
With petrol costs rising, the costs of transporting food will increase, which may get passed onto the consumer via higher price tags per kg in supermarkets.
Prior to the Russian invasion, British shoppers were already warned their annual food bill could go up by £180 due to the post-lockdown cost of living crisis. This figure is only likely to increase in light of the turbulent situation in Ukraine.
Energy bills
Households in the UK are already feeling the squeeze due to a rise in energy bills – and there’s concern the Russia conflict will only make matters worse.
The pandemic hit global supply chains with pent-up demand, shipping delays, factories in lockdown and staff absences. This led to wholesale prices of gas and other raw materials spiking.
Then, Ofgem, the energy regulator, announced that the price cap (the maximum amount suppliers can charge per unit) would rise by 54% from April 1. This means that, as per the cap, the average energy bill will go up by £693 annually. It means customers who were on a fixed tariff of £1,277, will soon need to fork out £1,971.
Further disruption to supply chains caused by Russia’s invasion could drive up the wholesale price of raw materials even further.
Multiple reports suggest household energy bills could hit £3,000 by October. But others say it’s too early to know a clear figure.
“It depends whether we are in this for the long haul, but it is clear that fuel prices are going to rise far beyond what we have previously seen,” a government source told The Times.
“The impact is going to add a lot to the cost of living.”