Is the worst over on oil prices?

Consumers are beginning to breathe a sigh of relief as oil prices fall after a shaky peace deal was agreed in the Middle East.

But the hangover from the blockade of the Strait of Hormuz will continue long after shipping fully resumes.

Consumers in Ireland and elsewhere will be paying more for food, natural gas and electricity due to the havoc of the last four months.

At the beginning of this year, oil prices were $60 per barrel, but with the outbreak of the war, they doubled to $118 on 31 March.

Since mid-May, repeated promises of a breakthrough from US President Donald Trump have seen oil prices fall.

Now that a resolution of sorts has been announced, oil is around $80 per barrel.

The fall, if the peace deal holds, will result in lower prices for petrol and diesel at the pumps - but not immediately.

Fuels for Ireland, the lobby group which represents forecourt retailers, says there has been damage to energy infrastructure, with up to 5% of refineries impacted.

The other issue is that even when the Strait of Hormuz fully reopens, which may take time, it takes about 50 days for tankers to reach Europe.

In late March, the Government cut the excise on petrol by 15 cent per litre, on diesel by 20 cent per litre, and by three cent on marked agricultural diesel.

Those reductions will expire at the end of July unless it decides to extend them.

When asked about the situation this week, Tánaiste and Minister for Finance Simon Harris said the Government would consider the issue in the next two weeks.

But he referred to the damage to energy infrastructure, which suggests he may be open to rolling over the excise cuts.

Economically, if oil prices continue to fall, it will be difficult to justify rolling over those reductions.

But elsewhere across the economy, the impact of the energy crisis has yet to play out fully.

Flogas, Electric Ireland, Pre-Pay Power and Yuno Energy have all announced increases of between 8% and 10.9% for electricity and 7.7% and 11.8% for natural gas.

That will be a significant burden for thousands of households around the country when consumption rises in the autumn.

And when the Dáil returns from its summer break in September, we can expect the Opposition to put massive pressure on the Government to introduce further supports for consumers in this October's Budget.

A significant issue is whether the coalition of Fianna Fáil, Fine Gael and Independents will reintroduce electricity credits.

These payments have been enormously expensive for taxpayers in recent years.

For example, the credit of €250 paid across late 2024 and early 2025 cost the State €550m.

They benefit the wealthy as well as vulnerable households because they are paid to all 2.2 million electricity accounts.

The owner of a house and holiday home gets twice as much as somebody owning or renting one property.

The Central Bank and Economic & Social Research Institute both argue that the coalition should target supports through the social welfare system to reach those who are less well-off.

However, politically, this may not work for TDs who wish to help the "squeezed middle" not covered by the social welfare system but struggling with deteriorating household incomes.

The problem with electricity credits is that once introduced, they can prove very sticky and any minister who removes them can expect to be excoriated in the Dáil.

In April, the Government paused a scheduled rise in Carbon Tax until October.

Reintroducing that in the autumn will be controversial too because it will put up the price of fossil fuels at exactly the wrong time.

In tandem with rising energy costs, we can expect the recent increase in food costs to continue.

Many crops grown using higher-priced fertiliser products have yet to be harvested and reach the shelves.

This week, the Central Bank warned that elevated inflation is eating into household incomes.

Wages have been rising by about 4% per annum, but when the higher cost of living is taken into account, this year pay will only rise by 0.5% in real terms.

The bank has increased its forecast for inflation, which it expects to be 3.5% this year and 2.9% in 2027.

However, it warns that, in a severe scenario, where oil soars to €120 per barrel, inflation could reach 5%.

If that happened, wages would fall in real terms.

But there is a broader lesson from this year's price shock.

Despite years of trying to move away from fossil fuels, which originate largely in some of the most politically unstable parts of the world, the fate of Ireland and other countries remains inextricably linked to oil.

It affects transport, distribution, food, heat, electricity, manufacturing, gas ... the list goes on.

Even before climate change considerations are taken into account, the further Ireland and other countries can move away from oil, the better it will be for consumers.