Sarah noticed it first at the petrol station.
She did not think about Iran, or the Strait of Hormuz, or global oil supply chains. She thought about the fact that she had filled up three weeks ago for £68, and now the same tank was £91.
She paid it. Got back in the car. Did not say anything.
Most people did not say anything. They just quietly adjusted. Bought the cheaper cut of meat. Skipped the restaurant. Moved money around in the app and hoped it would stretch.
Here is what was actually happening.
A small stretch of water
There is a passage at the bottom of the Persian Gulf called the Strait of Hormuz. At its narrowest it is 33 miles wide.
About a fifth of the world's oil passes through it every single day.
When the US and Israel launched strikes on Iran in late February, ships stopped moving through it. Oil markets, which hate uncertainty more than almost anything, reacted immediately. The price of a barrel jumped from around $75 to over $100 in a matter of weeks.
That does not sound like your problem. But it is.
Why oil is everyone's problem — not just drivers
Most people think oil equals petrol. It is way bigger than that.
Oil is in basically everything you eat before it reaches you. It powers the tractors in the fields. It makes the fertiliser that grows the crops. It fills the tanks of the lorries that drive your food to the supermarket. It keeps the warehouses running.
So when oil jumps above $100 a barrel — which it did pretty much the moment the Iran conflict started — all of those costs go up at once. And a few weeks later, the price quietly appears on your receipt.
Where things stand right now
Oil: $100-110 a barrel — up from $75 in February
US inflation: 3.8%
UK inflation: 3.3%
Next Fed decision: 17 June
Next Bank of England decision: 18 June
US inflation is at 3.8%. UK inflation is at 3.3%. Both had been falling. Both are now heading back up.
The Federal Reserve was expected to cut rates this year. It has not. The Bank of England base rate sits at 3.75% — the next decision is 18 June. Before the conflict, most people expected a cut. Now some forecasters are predicting rates could rise.
Every major oil shock in modern history — 1973, 1979, 2008 — eventually led to a recession. Nobody is calling that yet. But economists are watching.
What this means for your money
If you have a mortgage: Find out what rate you are on. If you are on a tracker or a standard variable rate, you are already paying more as rates have shifted. If your fixed deal ends in the next 12 months, speak to a broker before June 18.
If you have savings: Higher-for-longer rates are good news here. A one-year fixed bond is currently offering 4% to 5% in both the UK and US. If your money is sitting in a current account earning almost nothing, you are losing ground to inflation every month.
If you just want to understand what is happening: That is enough. Most people around you are absorbing higher prices without knowing why. You now do.
The bigger picture
The news covers this conflict as a foreign policy story. It is also an energy story. And an energy story is always a money story.
The decisions made in Washington and London this June will affect millions of people who will have no idea why their mortgage payment changed or why the savings rate moved.
Sarah is still filling up her car. She still does not know why it costs what it does.
That is the gap this newsletter exists to close.
Three things to do this week
Check what rate you are on — mortgage and savings
If your fixed deal ends within 12 months, speak to a broker before June 18
Forward this to one person who would find it useful
See you next week
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Joseph
Money Simplified. Finance in plain English. Free every Friday.
Not financial advice. Always speak to a qualified adviser before making financial decisions.
