UK ‘bracing for a worst-case state of affairs of oil worth spike till May’… as Reeves is advised bailout ought to give CASH to struggling households

The government is preparing for a ‘worst-case scenario’ where the Middle East crisis continues to rage for months to come.

Internal analysis is said to have concluded oil prices could reach $150 a barrel if fighting continues until May, with gas costs also spiking.

Only a ‘best case’ presented to ministers, where the conflict ends within days, would see the price stabilising below $100 a barrel, according to Bloomberg.

Iran has been boasting that its blockade of the Strait of Hormuz and attacks on neighbouring countries could drive costs to $200. 

The Resolution Foundation has warned that if oil prices remain at the levels seen this week the typical annual energy bill could rise by £500 when the cap changes in July.

That would more than wipe out the effect of government subsidies, which are helping to cut costs by £117 a year from next month.

Meanwhile, Rachel Reeves is being urged to hand out cash to struggling families if she goes ahead with a bailout, rather than offering subsidies through suppliers.

Despite Donald Trump suggesting the war on Iran is ‘very complete’, there is little sign of the turmoil abating. 

Oil prices crept up again today to around $100 a barrel – even though G7 nations have announced an unprecedented dump of reserves into the market.

The Chancellor has insisted it is too early to make any decisions, but made clear she is ready to help households if costs start to feed through. She is also facing demands to abandon a fuel duty rise due to take effect in September, with pump prices having spiked. 

The Resolution Foundation said today: ‘If the highs we saw on Tuesday continued, the cap would increase by roughly £500, undoing and-then-some the £117 fall coming in April thanks to Government policy.’ 

A research note from the IFS think-tank said although a bailout would not need to be in the scale of the estimated £48billion package responding to the Ukraine war in 2022, the UK’s borrowing situation was worse now.

The paper pointed out that most of that support came in the form of ‘substantial energy price subsidy, fuel duty tax cuts and a universal £400 rebate off of energy bills’.

But the IFS team argued that helped better off households and did not provide any ‘incentives to cut back on energy use’. 

They suggested the government should use data on incomes and energy use to work out who needed support most urgently.  

‘More targeted cash payments, that do not distort energy prices, would help the government deliver support where it is needed in a more cost-effective manner,’ the IFS said. 

During a fiery PMQs yesterday, Tory leader Kemi Badenoch warned Sir Keir six times that now was not the time to press ahead with plans to pile higher costs onto drivers.

She said spiralling pump prices sparked by the Iran war meant some motorists were already having ‘sleepless nights’.

Paving the way for his 15th U-turn, a visibly flustered Prime Minister said: ‘Fuel duty is frozen. It’s going to remain frozen until September and we will keep the situation under review in light of what’s happening in Iran.’

It came after the Chancellor suggested she would be reluctant to scrap the fuel duty hike when asked by MPs on the Commons Treasury committee.

Ms Reeves said: ‘I’m very loath to spend government money on something that the market should be doing itself and that’s why greater competition and greater transparency about pricing is so important.’ 

But she did leave room for an about-turn and, speaking more broadly about the Iran conflict, Ms Reeves added that it was ‘certainly not good for the British economy to have trade disrupted’ by the crisis.