Global political tensions indeed impact the markets worldwide. Just as other industries in the UK, the energy market is also on a thin line of uncertainty. The recent developments in the Middle East have caused energy suppliers and relevant authorities to react quickly regarding the expected changes. These changes are mostly related to wholesale prices. The UK energy industry is all about the wholesale market when it comes to gas and electricity. The production side is another debate.
Wholesale gas prices have already risen sharply due to this war zone situation in the Middle East. And here comes the fact! When gas prices go up in the wholesale, electricity also jumps higher. Fluctuations are always there but movements of this scale are less common and usually linked to major global tensions.
Why are energy prices rising now?
The global key energy routes are disrupted, the Strait of Hormuz. This disruption is the main reason for the recent price increase. Because this route acts like a cornerstone of global energy trade.
A major portion of the world’s liquefied natural gas (LNG) and crude oil traverses this corridor. When uncertainty impacts these routes, it quickly triggers a response from suppliers and traders. Ships may postpone their voyages and the risk associated may raise the costs for insurers.
Even the most minor disruptions can cultivate serious concern regarding future supply. This uncertainty alone can increase wholesale prices.
How do global supply chains affect UK energy prices?
Energy markets are global in nature. Regardless of the UK’s direct dependencies, the UK still feels the impacts of changes elsewhere.
Depending on prices, LNG cargoes can shift between regions. Suppliers shift their shipments to higher paying markets when supply is not getting through. As a result, multiple regions, including the UK and Europe, experience increased prices.
Ultimately, energy moves to where it is most valued. This principle connects and responds markets to one another.
UK Foreign Secretary statement on the Middle East conflict: 17 March
“Reopening the Strait of Hormuz is vital for market stability, and for the cost of living for British households.
But as the Prime Minister has said, this is a serious and complex issue.
And there is no easy fix.
So we are discussing this with international partners in Europe and Asia, Gulf partners and the US.
These discussions are separate from the conflict itself, as the US itself has said.
Because countries from around the world have been clear that they do not want to see escalation or to be drawn into a wider conflict.
But they do want to see the Strait open and functioning.
And they do not want to see the fundamental principle of freedom of navigation undermined.
And because it is an international shipping lane, multiple nations need to be involved in planning the way forward.”
What role do gas storage levels play?
Gas storage plays an important role in balancing supply with demand. Currently, gas storage levels in Europe are lower than usual, putting even more strain on the market.
If the current situation continues, gas storage levels will take even more time to replenish. This situation creates a market more sensitive to supply disruptions.
The UK government is confident and aims to strengthen their energy security in order to tackle such global events.
Energy Secretary Ed Miliband said:
“Global events demonstrate there’s not a moment to waste in our drive for clean power because there can be no energy security while we are so dependent on fossil fuels.
So today I’m announcing a series of initiatives to speed up our clean power mission: bringing forward the next renewables auction just months after our most successful ever, announcing that plug in solar will be available for the first time in Britain and speeding up our net-zero plan.
Everything we are doing is about one purpose: fighting the corner of the British people by taking back control of our energy.”
How does global LNG competition affect prices?
Since 2022, Europe has relied more heavily on LNG imports. Unlike pipeline gas, LNG offers flexibility, as shipments can move between regions.
This flexibility creates competition. If demand rises in Asia or other regions, suppliers may redirect LNG cargoes away from Europe.
Even small shifts in supply can affect prices. When fewer cargoes arrive in Europe, buyers may need to pay more to secure supply.
Is the UK at risk of running out of energy?
The UK remains well supplied. It has access to a diverse range of energy sources.
These include domestic gas production, pipeline imports from Norway and Europe, and multiple LNG terminals. This mix provides flexibility and resilience.
The current situation is not about physical shortages. It is mainly about price volatility. The UK can still access energy, but it may need to pay higher prices in competitive markets.
See how Powering Up Britain: Energy Security Plan applies in such geopolitical situations.
Why do gas and electricity prices move differently?
Gas and electricity markets are closely linked, but they do not always move at the same pace. Electricity generation works on a cost-based system. When gas prices rise, other energy sources can become more competitive. These sources may include renewables, biomass, coal, or imported electricity. As a result, electricity prices may increase when gas prices go up, but not always at the same rate.
What does market behaviour tell us?
Rapid price fluctuations in the market can greatly impact the behaviour of market participants.
When prices are volatile, many buyers will delay making a purchase decision until they feel prices are stable.These types of circumstances illustrate the value of developing a clearly-defined, flexible energy strategy.
Why does market insight matter?
Energy markets involve many different participants, including suppliers, traders, and generators. Each responds differently to price movements.
Some businesses focus on managing rising costs. Others may look for opportunities created by changing prices.
Understanding these different perspectives can help businesses make more informed decisions. It allows them to respond with greater confidence during uncertain periods.
How can businesses respond to market volatility?
Volatile markets can make decision-making more complex. However, there are practical steps businesses can take:
- Review your energy contract and its terms
- Understand how wholesale price changes may affect your costs
- Stay informed about market developments and global events
Having a clear plan can help reduce uncertainty and improve decision-making.
How do we support our customers?
We understand that changing market conditions can create challenges for businesses. Our aim is to provide our customers with affordable, reliable, and trustworthy energy supply. We keep our customers informed so the communication stands transparent.
Our teams monitor developments closely and remain available to support our customers.
Important Note:
Business energy prices may change due to wholesale market conditions. Please refer to clause 8 of our Terms and Conditions.
