18th September 2026
The latest rise in interest rates in Japan may seem a long way removed from the price of diesel at a Scottish filling station, but the two developments are part of the same global economic problem.
Energy prices have surged as the conflict in the Middle East has disrupted supplies and severely restricted normal traffic through the Strait of Hormuz. Brent crude is still around $104 a barrel, despite falling back from recent highs. More worrying for motorists and businesses, however, is what is happening to refined diesel and gasoil.
The International Energy Agency says diesel and gasoil prices have risen much more sharply than crude. US diesel prices passed $200 a barrel in early September, while European and Asian prices have also risen sharply. Gulf and Russian diesel exports together were around 1.6 million barrels a day lower in August than before the conflict.
This matters enormously to Britain.
Diesel is not simply the fuel used by cars and vans. It powers a huge proportion of Britain's freight, agricultural machinery, construction equipment, buses, generators and other commercial vehicles.
When diesel becomes more expensive, the cost does not stop at the filling station.
A lorry delivering food to a supermarket uses diesel. So does the lorry delivering building materials to a housebuilder. Farmers use diesel to cultivate fields and harvest crops. Construction companies use it to operate machinery. Businesses then face higher transport and production costs and have to decide how much of the increase they can absorb.
Eventually, some of those costs are passed on to customers.
This is how an oil shock that starts thousands of miles away can eventually appear in the price of bread, groceries, building materials, restaurant meals and almost everything else that has to be transported.
Britain is already seeing the first effects. CPI inflation rose to 3.1% in August, with higher petrol and diesel prices among the main contributors. The Bank of England says the indirect effects of higher energy prices on other goods have so far been relatively limited, but expects those effects to build over the coming months.
The Bank's latest assessment is particularly significant. It expects inflation to rise to around 3.75% in the final quarter of 2026 and slightly above 4% in the first quarter of 2027, based on energy prices prevailing in mid-September. It also warns that the effects of higher energy costs could take time to work their way through company supply chains.
That creates a difficult problem for the Bank.
Higher interest rates can suppress demand, but they cannot produce more oil or make the Strait of Hormuz safer. Nevertheless, if businesses respond to higher costs by raising prices and workers then seek higher wages to compensate, an initial oil shock can become more deeply embedded in inflation.
This helps explain why the Bank of England kept interest rates at 3.75% this week, but three of the nine members wanted an increase to 4%.
There are already warnings that diesel could become considerably more expensive. Some forecasts and market discussions have raised the possibility of UK pump prices reaching around £2.30 a litre later this year if the disruption becomes prolonged.
That should be treated as a stress scenario rather than a firm prediction.
At present, there are also signs pointing in the other direction. Saudi Arabia is attempting to restore oil exports and find alternative routes, helping Brent fall to about $104 on Friday. If oil flows through the region improve, some of the recent price premium could disappear.
But diesel is the part of the market worth watching particularly closely.
Even if crude oil prices stop rising, a shortage of refined diesel can keep pump prices moving higher.
And if diesel were to reach £2.30 a litre, the impact would extend far beyond motorists. It would become a tax on transport, farming, manufacturing, construction and ultimately the prices paid by households.
The next few weeks could therefore be crucial. If Middle Eastern oil flows begin to recover, the pressure could ease. If the disruption continues, diesel prices could become one of the main ways that the energy crisis feeds into Britain's inflation rate during the winter.
For households already facing higher heating, electricity and food bills, that is the part of the oil story that deserves watching most closely.