The ongoing conflict in the Middle East could trigger an energy price surge that wipes out expected gains in UK living standards, a leading thinktank has warned. The Resolution Foundation said a one-off rise in average living standards in 2026, including a boost for lower-income households, could be erased if oil and gas prices continue to climb due to the Iran conflict. While the impact may not match the surge in costs after Russia’s invasion of Ukraine, analysts warn that energy price hikes this year could add around 1% to UK inflation and increase typical annual energy bills by £500. The UK’s reliance on gas from the Middle East makes the country vulnerable. About 20% of the world’s liquid natural gas passes through the Strait of Hormuz, which Iran has largely blocked, disrupting oil and gas exports. According to the thinktank, living standards for a typical working-age household are projected to grow by £300 in the next year, a 0.9% increase. Lower-income households could see a larger rise of £800, or 3.9%, largely because of the removal of the two-child benefit cap and an above-inflation increase in universal credit. James Smith, research director at the Resolution Foundation, said the government should consider creating a social tariff to protect low-income households from energy shocks. Past across-the-board support packages have proven expensive. “We have called for the government to develop the infrastructure for a social tariff, targeting people with high energy needs and low incomes,” Smith said. “If the government provides support to everyone, it becomes very costly.” The Institute for Fiscal Studies (IFS) echoed this view, warning that blanket energy support, like that offered after the Ukraine invasion, cost the UK £35bn. Helen Miller, director at the IFS, said targeted help is more sustainable. “This type of government support has contributed to rising debt,” she said. “Shocks keep coming, and trying to stabilize debt only in better times isn’t enough. Targeted support is more effective than across-the-board packages.” The IFS also warned that accelerating the government’s plan to spend 3% of GDP on defense by 2030 could cost £14bn annually. Such a move would cancel planned increases in other areas unless taxes were raised. Ruth Curtice, chief executive of the Resolution Foundation, said the UK’s economic outlook is uncertain. She warned that a fresh energy price shock could undo the planned improvements in living standards, especially for poorer families. “This coming year was set to be a decent one for living standards and a strong one for low-income households,” Curtice said. “But rising energy costs risk puncturing this good news.” The Joseph Rowntree Foundation said the picture could be worse than official forecasts suggest. They argued that claims of a £1,000 annual increase in living standards by the next general election overlook rising housing costs. “Our modelling finds average annual household disposable incomes could grow by only £40 over the current parliament, after adjusting for inflation,” the foundation said. They noted that real household disposable income, used in official forecasts, does not fully account for housing pressures.