It’s June, and there are still several months to go before most of us even think about switching the heating back on. But when the colder months return, many households will be wondering: how much will it cost to keep warm, given the ongoing tensions between Israel and Iran?
It’s a difficult question to answer, as no one can say how long this situation will continue or whether it will escalate further. What we do know is that, in the short term, fuel prices, whether for gas, oil, or electricity generated from gas, are likely to rise.
The Middle East remains a key region for global energy supplies, and any threat to shipping routes or wider instability can push up wholesale energy costs. While the UK doesn’t buy gas directly from Iran or Israel, we do rely on global LNG supplies and international trading markets, which react quickly to any perceived risk.
So, for now, households should keep an eye on developments, be aware that bills could edge higher this winter, and consider energy-saving measures or fixed tariffs where possible to cushion against sudden price spikes.
Global Energy Supply Threats:
Geopolitical tensions in the Middle East have long been a significant driver of global energy markets. Iran is one of the world’s largest oil producers and holds some of the largest oil reserves in the world. While sanctions have stopped some of its exports, the country remains a key player in the global energy system. Current tensions with Iran and Israel raise fears of a broader regional conflict, which could possibly do a number of things, including:
1. Disrupt oil production or exports directly from Iran or neighbouring states.
2. Threaten shipping through the Strait of Hormuz, which is a narrow waterway through which about 20% of the world’s traded oil passes daily.
3. Trigger retaliatory attacks on oil infrastructure across the region, including in Saudi Arabia, Iraq and the UAE.
Even if the actual supply is not cut off, oil markets often react strongly to the perceived risk of disruption, causing prices to increase.
LNG:
Unlike oil, the UK does not import natural gas directly from Iran or Israel in any meaningful quantities. Most of our gas comes from a mix of domestic North Sea production, pipeline imports from Norway, and liquefied natural gas (LNG) shipments from countries such as Qatar and the United States. However, the Middle East is a critical hub for global LNG (Liquid Natural Gas) supplies. Qatar, for example, is the world’s second-largest LNG exporter and a key supplier to Europe. The region’s shipping routes, especially the Strait of Hormuz, are vital for transporting LNG tankers to global markets. Any disruption through these can cause market jitters and push up wholesale prices.
While Iran itself is a significant gas producer, its exports are primarily directed to regional neighbours due to infrastructure limitations and various sanctions. The greater risk to global gas markets stems from the knock-on effect of a broader regional conflict. Tensions could risk the security of LNG shipping routes in the Persian Gulf. If Iran or its proxies were to target shipping traffic, insurers might increase premiums, raising transport costs. Supply interruptions could drive up competition for alternative cargoes, with Europe having to outbid Asian buyers to secure enough gas. In an interconnected global market, even if UK supply routes remain physically unaffected, prices can rise if Europe’s overall gas supply tightens.
Following Russia’s invasion of Ukraine, Europe has drastically reduced its reliance on Russian pipeline gas, turning instead to LNG from the US, Qatar, and others. This has created a more competitive market, where any supply scare in one region can spread across the continent. UK gas prices are linked to these wider European markets through pipelines and trading hubs. If European prices rise, UK wholesale gas prices tend to follow suit. This can impact household energy bills, though many customers are now on fixed tariffs or subject to the Ofgem price cap.
What could happen?
For now, gas prices are likely to remain volatile if the Middle East situation escalates; however, significant spikes would depend on how directly shipping routes or major exporters, such as Qatar, are affected.
If tensions escalate into shipping disruptions or attacks on tankers, UK wholesale gas prices could surge, leading to higher energy bills for consumers once fixed-price periods expire or for businesses on variable tariffs.
Energy suppliers and the UK government would likely monitor the situation closely and could consider measures to stabilise prices if a severe supply crunch occurs.
