Until last week, there was still a chance that the Middle East crisis might be short-lived. President Donald Trump had claimed it could last ‘four or five weeks’. Global financial markets fell at the outbreak just over three weeks ago, but not as precipitously as they would have, had they known what really lay ahead.

Had the crisis not escalated, British households would have taken a limited hit. We may have been forced to pay a bit more at the petrol pumps, taken a temporary knock to our investments and faced the prospect of slightly elevated energy prices come July – but that might have been the extent of it.

But all that changed on Thursday, when Iran threatened to launch ‘full-scale economic war’ that would cripple the global energy market. Now the picture looks far worse. The changes that may be coming to our personal finances could be graver and more prolonged.

Today, Wealth speaks to top financial experts to unpick what could be in store – and how households could prepare themselves – if the conflict continues to escalate.

Rising inflation

Before the war began, it looked like British households might finally get some relief from the soaring cost of living we’ve been battling against for the last five, painful years.

Inflation was predicted to fall to 2.3 per cent this year and return to the Bank of England’s target of two per cent from 2027. It would have been a welcome return to more manageable levels, after the budget-pinching price escalations we have endured on everything from butter and meat to white goods and meals out.

But a lot has happened since the Office for Budget Responsibility published those predictions fewer than three weeks ago.

Financial markets are now adjusting to the fact that a quick end to the conflict is unlikely.

Rachel Rickard Straus says oil price rises will affect numerous industries, from food and drink to oil-based products such as paint

How far the price of energy bills will escalate is hard to predict without knowing how the conflict will play out

Gas prices in Europe rose by 30 per cent as markets opened on Thursday and have more than doubled since the start of the war.

Oil prices are soaring, with Brent crude as high as $118 a barrel on Thursday, when Iran attacked Qatar’s Ras Laffan hub through which a fifth of the world’s supply of liquefied natural gas (LNG) flows in normal times.

Production there had been halted as a precaution, which could have been reversed once hostilities eased. Now the damage means a return to production could take months or longer, resulting in long-term disruption to global gas supplies.

Iran’s threats to launch a ‘full-scale economic war’ by ramping up attacks on oil and gas sites mean there may be more to come from both sides.

Iran’s attack followed Israel’s strike on the world’s largest natural gas field, South Pars in Iran, which accounts for about 70 per cent of the country’s total gas production.

Meanwhile the continued closure of the Strait of Hormuz by Iran is disrupting global trade – and the shipment of oil in particular.

Higher oil and gas prices mean elevated costs at petrol pumps and higher energy bills for households. But they are far wider-reaching than that.

The cost of goods will inevitably rise as manufacturers face bigger energy burdens and have no option but to pass these on. The cost of transporting those goods will also rise – costs again passed on to the end customer.

It’s hard to think of an industry that won’t be hit. Manufacturers are warning of further price rises due to the growing expense of oil-based materials such as paint, packaging and wood.

The Food and Drink Federation warned that energy is embedded into every stage of the manufacturing process. The cost of food will be hit especially by inflated transportation costs and the soaring cost of fertiliser – which is very energy-intensive to make.

Even uPVC window and door installers warn that prices could rise by the summer, as the items are derived from petroleum-derived chemicals.

It’s no wonder financial markets are now forecasting that UK inflation could go above five per cent again. And that may not be the end of it. If rising costs push cash-strapped households to their limit, they will cut back where they can. That could hurt the economy as people go out less, buy less, hire less.

Tax advisory firm Blick Rothenberg warns that the fallout of higher petrol and diesel costs could even make UK unemployment rise. Robert Salter, a director at the company, says: ‘Businesses will be hurt financially, even outside of the transport and petrochemicals sectors, ultimately affecting their hiring plans.

‘High fuel costs may reduce the distance people are able to travel for work or to seek work, and therefore their employment options.

‘Rising inflation due to the Gulf conflict will increase running costs for businesses, reducing the number of entry level roles available.’

Households facing higher inflation sometimes bring forward purchases before prices escalate.

But in most instances this is unrealistic. Few of us have the cashflow to buy in advance and doing so can be risky as the situation is so uncertain. If the conflict is resolved quickly, the price of goods may not rise significantly and then we’re left with things we don’t yet need.

Buying in advance can also be hazardous if large numbers of households do it as it can lead to shortages and embolden retailers to put up their prices.

However, you can take measures to protect your finances that you will not regret whatever happens. This could include paying down unsecured debt where you can and trying to build a cash savings buffer in case circumstances worsen.

Petrol prices

Petrol has increased by 10p a litre since the start of the conflict and diesel by double that, according to the RAC.

‘This is really starting to hurt drivers who do a lot of miles, especially those with diesel vehicles,’ says RAC head of policy Simon Williams.

‘At 162p a litre they’re now paying £11 more to fill up on average than they were at the end of February.’

The RAC predicts that if oil stays around the $100 a barrel mark, the price of diesel would be about 170p a litre, while petrol should not exceed around 148p.

However, with the crude oil price now exceeding that – and predictions that it could hit a troubling $150 a barrel – pain at the pumps could get a lot worse.

Energy bills

Energy bills are likely to be driven higher – but how far they will escalate is hard to predict without knowing how the conflict will play out.

Fortunately, if you’re on your supplier’s default tariff you will benefit from the price cap imposed by the regulator Ofgem.

This is set at £1,758 a year for a typical household until the end of the month and then at £1,641 for the following three months.

After that the picture becomes less clear so forecasts are very likely to change.

Energy supplier EDF on Thursday predicted a July to September cap of £1,858, rising to £1,919 from October to December and £1,928 from January to March next year.

When energy bills soared because of Russia’s war with Ukraine, the Government stepped in to offer financial support and shield households from the worst.

People with diesel vehicles are now paying £11 more to fill up on average than at the end of February

Th war in Iran has led to a spike in oil prices, which increases inflation and hits investments

However, it is unclear whether such a move would be possible in the current economic climate.

With the cost of Government borrowing rising again, such a financial outlay may be prohibitively expensive.

If you want to protect yourself from the uncertainty, you could lock into a fixed energy deal that will set your price of energy at a certain rate for a year or longer.

There are still some deals available, although they are disappearing rapidly.

At the start of the conflict, there were 39 tariffs on the market. By Thursday, there were only 18 available. The cheapest tariff for an average household was £1,509 – now it is £1,695.

Go to thisismoney.co.uk/energybills to check the best deals available. It may be worth opting for a deal that is above the energy price cap for the certainty that it can offer you.

Mortgage and savings rates

As inflation marches back up again, central banks could turn to interest rate freezes or even hikes in an attempt to rein it in.

At the beginning of the year, investors were predicting an interest rate cut by the Bank of England last week. But when the Bank announced its decision on Thursday, it was a unanimous one to hold interest rates at 3.75 per cent.

Bets on financial markets indicate there is a 55 per cent chance of a rate hike next month followed by two more before Christmas – taking it to 4.5 per cent.

Should rates rise, this should lead to higher interest rates for savers. However, this is little consolation if inflation is also on the rise. It doesn’t matter if you find the best savings rate in the world – if inflation is just a fraction higher, you’re still losing value in real terms.

Meanwhile the mortgage market has already been transformed since the start of the conflict and there is likely more to come if hostilities are sustained.

At the beginning of March, the average of the top ten lenders’ two-year fixed rates for remortgages was 3.77 per cent. By Thursday, the average was 4.35 per cent, according to David Hollingworth of broker London & Country.

That’s an increase of 0.58 per cent in fewer than three weeks. On a 25-year £200,000 repayment mortgage, that’s an increase of £780 a year.

Five-year mortgages have risen from 3.93 to 4.45 per cent – an increase of £696 a year on a £200,000 mortgage.

Mr Hollingworth adds that: ‘Increases to fixed rates are very likely to continue for now and borrowers should brace themselves for a bumpy ride.

‘We’ve seen very significant levels of product repricing and a deal that is there today isn’t guaranteed to be there tomorrow. Borrowers will have to move quickly to secure rates which will protect against any further hikes.’

If you’re due to remortgage this year, speak to your broker or lender and lock in a new rate as soon as you can. It is possible to reserve a new mortgage rate as early as six months before your current one ends.

If the situation changes and rates begin to fall again, it is usually possible to abandon it in favour of a new one until just before the new mortgage begins.

Investments

When facing huge market volatility and shocks, experts overwhelmingly advise that investors should hold their nerve.

Rash decisions – especially those made out of fear – rarely end well.

If you have a strategy in place that you’re happy with, stay focused and try to drown out the noise (and don’t check the value of your investments too often).

However, that may well be easier said than done.

Losses on the London market now total more than £250 billion since the start of the war.

Investments in Europe and Asia have also taken a hit as stock market growth around the world slammed into reverse.

Any investors with money tied up in shares through their pensions, Isas and other investments are likely to have taken a blow in recent weeks.

Knee-jerk reactions often do more harm than good. Timing the market is a fool’s game.

We still do not know whether the current conflict will be sustained or resolved soon.

If you have a diversified portfolio – in other words, not holding all your eggs in one basket – that should protect you from the worst of the volatility.

Holding a mix of asset types in various geographies and sectors means that if one suffers a large fall, you won’t be overly affected because it forms just one component of your portfolio.

However, there are some types of investments that may provide additional ballast.

Jason Hollands, managing director of investment platform Bestibvest, suggests that gold, for example, can provide a form of ‘portfolio insurance’ at such times.

‘We typically advocate a four to five per cent exposure to gold within portfolios,’ he says. As a preferred pick, he suggests Invesco Physical Gold ETC.

He also suggests high-quality government bonds, such as UK gilts and inflation-linked securities. These, he says, can help mitigate against the impact of rising prices. One option is the iShares UK 0-5 Years UCITs ETF, which comprises gilts due to mature within the next five years.

Finally, keep a range of shares in different sectors.

Stocks in companies that depend on consumers’ discretionary spending could struggle in the event of a downturn – especially travel, hospitality and real estate.

But if you have those alongside stocks that perform well even in difficult markets, that should spread your risk.

‘Investors may wish to ensure that they have sufficient exposure to more defensive areas of the market, such as healthcare and consumer staples, alongside sectors that can benefit from sustained government spending and structural demand, including defence and infrastructure,’ adds Mr Hollands.