For the third time since 2020, Irish consumers are asking what impact unanticipated and enormous global upheaval will have on them.
Just as the Covid pandemic in 2020 and Russia’s invasion of Ukraine in 2022 left consumers counting the costs in households, the US-Israeli attack on Iran has sparked fears of prices spiralling out of control closer to home.
It is too soon to say with any degree of certainty exactly what the consequences of the conflict will be, although in some areas the financial pain is already being felt to a level that is inexplicable. There are concerns the war will further fuel the cost-of-living crisis.
Home-heating oil
The increase in the price of heating oil has been dramatic.
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Little more than a week ago, 500 litres of oil had an average price of €498. By Thursday morning, the average price being quoted on oilprices.ie was €798, an increase of 60 per cent.
The huge price jump led to accusations of price gouging from consumers and across the political spectrum. It has prompted Minister for Enterprise Peter Burke to task the Competition and Consumer Protection Commission (CCPC) to launch an immediate investigation.
However, Kevin McPartlan of Fuels for Ireland, the umbrella group representative of the industry, said the accusations of gouging were unfounded and calls for an investigation were performative.
The bottom line for consumer – and the consumers affected most are outside large urban centres who are not on the gas grid and have to rely on home heating oil – is that costs are soaring. Although the spike may level off, prices look set to remain elevated while the conflict continues.
Interest rates
A long war in Iran will push up prices everywhere, and if it starts to climb significantly – as it did in the early phase of Russia’s war with Ukraine – the European Central Bank (ECB) might have no choice but to raise interest rates.
Such a move will be felt across the wider economy, but in the first instance it will hit Irish mortgage holders. Recent history means we have a clear idea of what that looks like.
In a 12-month period up to the summer of 2023, the ECB embarked on the most aggressive series of hikes in its history with its main lending rate going up nine times – from zero to 4.25 per cent – as it fought to bring inflation under control.
The increases cost tens of thousands of tracker mortgage holders about €400 every month, while those coming off fixed rates and those securing new mortgages also had to pay hundreds of euro more each month.
Since then the ECB has rolled out multiple rate cuts, and the good news for consumers here is that the Frankfurt-based bank is playing down the prospect of more hikes, at least in the short term.
One of the ECB’s chief policymakers, Joachim Nagel, said the bank was monitoring the impact of surging energy costs due to the Iran war extremely carefully. He recalled the price shock that followed Russia’s invasion of Ukraine, suggesting the ECB was “well positioned” to respond to whatever happens next.
“It is still too early to draw any monetary policy conclusions from this volatile situation,” Nagel said.
“At the ECB governing council meeting the week after next, we will discuss the latest data and projections. On this basis, we will then decide whether the current monetary policy stance remains appropriate or whether action needs to be taken.”
Electricity and gas
In Ireland gas generates more than 40 per cent of the country’s electricity, so any increase in wholesale prices will affect electricity bills, according to Daragh Cassidy of price comparison and switching website bonkers.ie.
He said the price households pay for gas and electricity generally reflects the average cost of energy on wholesale markets over roughly 12 to 18 months, “because suppliers purchase much of their energy in advance and at different times throughout the year”.
As a result, any increase in wholesale prices usually takes several weeks, if not months, to feed through into higher household bills.
“So I’m not expecting any major hike in prices just yet,” Cassidy said.
He pointed out that wholesale energy costs make up between 40 per cent to 50 per cent of the final price that households pay for gas and electricity, with the rest comprising VAT, the public service obligation (PSO) levy and carbon tax, network charges and the supplier margin.
“The longer the crisis continues and the longer wholesale prices remain elevated, the more likely it is that we’ll see gas and electricity bills rise again,” he said.
He said a sustained 50 per cent increase in wholesale gas prices might translate into a 20-25 per cent increase in domestic bills, amounting to about €600 a year.
Cassidy also noted that most of the country’s energy suppliers raised electricity prices towards the end of last year by about 10-15 per cent on average as a result of sustained high wholesale prices and increased network charges. But both Electric Ireland and Yuno Energy announced prize freezes for the winter months.
“With winter now over, both suppliers could potentially hike their electricity prices over the coming month – but this wouldn’t be due to the conflict in Iran,” he said.
Petrol and diesel
The early impact of the war on petrol and diesel prices has “washed through” the system, with the cost of a litre of fuel climbing by about 10 cent since last Friday, although in some garages the price of a litre of fuel has climbed by as much as 15 cent.
The average Irish motorist drives 17,000km a year, so a 10 cent increase would add about €130 to the annual cost of motoring. Prices could continue to climb if the conflict deepens and the impact on global oil prices worsens. In such a scenario, prices could climb closer to €2 a litre and beyond as they did in the wake of the war in Ukraine.
Cassidy said some of the increases seen on forecourts around the country over the past few days “look like blatant profiteering to me”.
“It’s hard to believe that a crisis which only broke out at the weekend could already be pushing up prices,” he said.
“Much of the petrol and diesel currently in the country would have been imported two to three weeks ago – before the crisis began. It’s certainly something the CCPC should look at.”
Groceries
It is too early to say what impact the conflict will have on prices in supermarkets, but analysts have warned that the closure of the Strait of Hormuz – the strategic sea transit channel next to Iran, between the Gulf and the Gulf of Oman – will disrupt shipping. It will reduce oil and gas supplies, and fertiliser supplies will be hit hard. Grain prices have started climbing on commodity markets.
The knock-on impact of the war for Irish farmers and food producers will be keenly felt, while exporters bringing products into Europe from Asia might have to establish longer and costlier routes, which will also put more upward pressure on prices.
Air travel
Since the start of the conflict the price of flights between Europe, Asia and Australia has climbed by as much as 30 per cent due to the closure of the Dubai, Doha and Abu Dhabi hubs. In the longer term, higher oil prices will lead to fluctuations in airfares, although that is unlikely to have an impact in the short term as airlines tend to hedge their fuel costs for up to a year in advance.
