What are likely to be the effects of the Third Gulf War and increases in the price of oil on UK universities and their students?

This blog was kindly authored by Huw Morris, Institute of Education, University College London, and Richard Watermeyer, School of Education, University of Bristol.

UK universities enrolled 685,565 international students in 2024/25, a fall of 6%  from the previous year. Student numbers from India fell by 18,500 (12%), China 6,400 (5%) and Nigeria 14,300 (33%). One of the indirect effects of the current US / Israel war on Iran will be to further jeopardise these numbers, that is, if the price of oil remains above $100/barrel and the costs of gas stays high for several months. If the worst case scenario of $200/barrel  and gas doubling in price materialises, the scale of this decline will be much worse.

India and China are the two largest sources of international students coming to the UK. Both countries are major oil importers whose economies have begun to weaken as energy costs have risen, making sterling-denominated tuition fees less affordable for many students and their families. It is reasonable to expect that a sustained $100 price per barrel for oil could therefore reduce Indian and Chinese enrolments by between 5% and 10% in 2026. This is equivalent to a loss of between 7,000 and 15,000 students, respectively, from each of these countries alone. Nigerian student numbers (already severely depleted) may stabilise as the currency has become more stable in the last year and the economy looks set to benefit from the shortage of oil sourced from the Middle East as the price for oil rises and they fill some of the shortfall in supply. Recruitment of students from Gulf state countries may also offer a partial offset for UK universities if the decline in oil revenues does not lead to immediate cuts in government and consumer expenditure. However, even if recruitment from these countries remains strong, it cannot compensate at the scale required to offset declines from Asia. There is also the possibility that numbers from these locations will fall due to the travel safety concerns of prospective students and political concerns of their national governments if the UK is perceived to conspire with the Americans and Israelis. Combining these assessments, a reasonable worst-case scenario is a total fall of 5 – 10% in international student numbers, reducing total numbers to approximately 24,000, moving from 617,000 – 651,000. That is a reduction in income of between approximately £0.5bn and £1bn. Such a hit is likely to have knock-on effects for institutions that do not recruit large numbers of international students, as high-tariff universities with historically large numbers of international students relax their entry requirements for domestic students. These changes are likely to create cascade effects for lower tariff institutions, as was evident last year when several Russell Group institutions lowered the grades they expected from prospective international and domestic students, and this was accompanied by falls in recruitment at less prestigious institutions that had not altered their admissions requirements. The potential reduction in entry requirements is then likely to impact on the learning and teaching experiences of students and staff.

Apart from changes to international student recruitment with effects on university income, there is also the challenge of increased costs for these institutions and for their students. The pre-conflict level of inflation as measured by the Consumer Price Index (CPI) was widely expected to fall to around 2.1% by mid-2026. Each $10 rise in oil prices typically adds 0.2 percentage points to CPI inflation. Indeed, modelling finds that a sustained oil shock to $100/barrel raises UK CPI inflation by approximately 0.7 percentage points relative to baseline if the shock persists for a year. On this basis, sustained energy prices at current levels could push CPI to 3% by the end of 2026, which in turn is likely to lead the Bank of England to increase interest rates. These price increases will place additional upward pressure on the cost of living for students and staff. For students, this is likely to mean more seeking part-time and full-time work while studying and more commuting in order to stave off the costs of relocation. For staff, it is likely to precipitate renewed industrial action as higher pay claims become inevitable.

In 2024/25, approximately 45% of U.K. universities are expected to have declared financial deficits, and for the financial year 2025/26 it has been forecast that 75% will record a deficit. The anticipated increase in inflation is very likely to translate into additional costs across energy, estates and staff salaries. For example, a mid-sized university with a £300m operating budget could face £5-10m in additional annual costs from this inflationary uplift at precisely the moment its international fee income is contracting. Regrettably, the resumption of index-linked increases to undergraduate tuition fees in England and Wales is unlikely to provide the compensation anticipated at the time of the Autumn budget in 2025, when the Retail Price Index (RPIX) (i.e. excluding mortgage interest) used to set the August 2026 increase in student fees was 2.7%.  More recent forecasts have suggested that RPI may be as high as 3.3% by September. This change has added to the other challenges posed by increases in employer national insurance contributions, the minimum wage and pension costs in the higher education sector.

Faced with these likely changes, it is crucial that university executives and governors act now rather than wait for conditions to deteriorate further. Governing bodies should commission immediate scenario-based financial reviews covering a range of possible adjustments relative to a 5% to 15% fall in international and home student income. They should also identify in advance which programmes, campuses and staffing commitments are most vulnerable. Executives should accelerate diversification of recruitment geographies, prioritising markets less exposed to oil-price volatility and should review the terms of any deferred fee arrangements with students from affected countries. It is important to note that the countries that may have been most likely to provide offsetting increased numbers of international student recruits are those which have been subject to a ‘visa brake’ in recent months, i.e. Bangladesh, Pakistan and Sri Lanka.

The Office for Students should require all registered providers to submit updated financial sustainability statements that explicitly address geopolitical risk and should lower the threshold for early intervention where institutions show signs of acute stress. The UK government should consider whether emergency support mechanisms, analogous to the Higher Education Restructuring Regime (HERR) deployed during the pandemic, may be required to prevent disorderly institutional failures and should engage urgently with international partners on student visa and scholarship frameworks that can sustain recruitment flows during the current period of global instability. What is certain now is that there is a pressing need for all to plan for these changes. The institutions that will fare best in the months to come will be those who begin to respond now and continue to tackle these challenges proactively.