Conflict, costs and cashflow – an update in light of the war in Iran

We’re back to that unpleasant feeling of looking at our investments and seeing minus signs and red. It’s not comfortable. Never will be.

When military action in Iran began, our view was that it’d be difficult for either side to keep at it for a long time. In the US, elections are coming up and higher energy costs don’t win votes. And Iran has limited resources to draw on. The country is entering hyperinflation; very recently having to print new 10 million rial notes, worth roughly £5 of goods.

As we pass one month, we’re already seeing cost pressures. Even if the military action stopped tomorrow, it’d take time for energy costs to fall. For oil and gas, there’d be lingering worries about the durability of peace. Plus, governments would need to refill energy reserves. Insurance companies would continue to charge higher premiums for ships.

While we’re still hopeful for a resolution, it’s worth thinking about how it could affect our daily lives. Plan for the worst, hope for the best!

Costs and inflation are personal things. There’s a published estimate, but your personal rate of inflation differs depending on what you buy.  As your income rises, food prices and petrol will be a lower share of costs while mortgage payments and travel are a bigger share.

So, looking ahead, how could our costs change?

• • Energy: The Brent crude price per barrel may be the most widely reported by the media, but we don’t buy barrels of oil. The average petrol price in the UK has risen to 152.83p and diesel to 182.77p¹ with both still likely to further increase. On the upside, energy bills won’t change for most people until July – the month we tend to use the least energy.
  • Travel: Jet fuel has gotten more expensive, although some airlines will have hedging in place. With key transit hubs in the Middle East out of action and fewer planes in the air, there’ll be more people trying to board fewer planes. (But perhaps fewer planes in the sky can ease the shortage of fuel!) The Middle East accounts for 6 to 9% of global tourism (depending on how it’s measured). With that option out, European destinations may benefit. And maybe even the UK . This spring there may be a trend of people holidaying somewhere a little closer to home than usual, with an uptick of 235%² in bookings compared to this time last year, according to Habitat Escapes.
  • Food costs may also go up due to higher fertiliser costs. This usually takes a few months to appear. The price of urea from Egypt – a benchmark for fertiliser – is up 72% since the end of 2025.³ Rises in food prices come from either higher input costs for farmers or farmers using less fertiliser and producing less.
  • Goods will have higher transportation costs. Some of this is the fuel needed to get from A to B. It’s also due to having to use different shipping routes and hundreds of vessels being stranded.
  • Mortgages and borrowing will be at higher interest rates. If inflation rises, the yields on UK government bonds also tend to rise. Interest rates for mortgages move in sync with UK government bonds, so that pushes up the interest homeowners pay. There are an estimated 1.8m properties that’ll have their fixed rate end in 2026. About 1m of those are coming off 5-year deals from 2021, which were at low rates⁴. e.g. if you’re borrowing £1m and the interest rate goes from 3.75% to 4.50% pa, then you’ll pay about £7,500 more each year.

Beyond the costs, more tax changes could be ahead. Higher interest rates and inflation would add to government debt servicing costs, eating into the UK’s overall finances.

The 2025 Budget included multiple changes due in 2027 and 2028 – like the tax on more expensive homes and EV mileage charges. Politically, the government was probably hoping they could drop some of these when it got round to it. But economic reality now means that if government finances deteriorate, it looks more certain that these will be implemented.

How we can help

We can’t help with energy costs or inflation, but we can help with setting a financial plan, building a diverse investment portfolio and finding the right mortgage. If your mortgage needs to be renewed, we can help with independent mortgage advice to find the best fit for your needs.

For financial planning, we use cutting-edge software to build a detailed financial model for you, helping you feel more in control in making informed strategic decisions about your finances. We start by plotting your income, assets, liabilities, and expenditure. Once these basics are in place, we work with you to plot ‘What if’ scenarios – the impact of higher costs, a second home purchase, early retirement etc. Then we can be sure decisions you make about your finances are anchored in fact instead of guesswork, because the best way to deal with uncertain times like these is to know that you’ve got a long-term plan.

¹ Latest UK petrol and diesel prices | RAC Drive

² Iran War Sparks 235% Surge in UK Staycation Bookings as Travel Chaos Looms – British Brief

³ www.tradingeconomics.com

⁴ Mortgage Market Forecasts, UK Finance

This communication is for general information purposes and doesn’t constitute advice on investments, legal matters, taxation or any other matters. Past performance is not a guide to future returns or results.