Skip to main contentUK and European energy prices continue to edge higher as the US and Israeli military conflict with Iran enters its third week with no end in sight.
The effective blockage of the strategic Straits of Hormuz by Iran has led to oil and gas prices surging to levels last seen following the Russian invasion of Ukraine in 2022. Indeed, 30% of global seaborne oil and 20% of global LNG normally shipped via the Strait remains unable to reach customers in Europe and Asia. On Tuesday morning (17th March) Brent crude prices have moved once again above the $100/bbl level to currently trade at $103/bbl.
Intraday market volatility has increased significantly with rapid swings in contract values given political developments and media updates on the conflict. However, markets look to be settling at higher equilibrium prices with traders now expecting the conflict to continue into the spring and the net effects on prices to be felt for the rest of the year and into 2027 as forward seasonal prices begin to rise.
Concerns have been raised that even if the shipping lanes through the Arabian Gulf were to be reopened through either military or diplomatic means, oil and gas export terminals across the region will take some time to return to full capacity given their unplanned shutdowns since early March.
Fortunately, direct Iranian attacks on energy facilities across the region have, to date, only caused minimal damage but should missile and drone attacks on oil and LNG terminals intensify the long-term bullish impact on prices for the remainder of this year will only gain further momentum as the potential for long term outages increases. As such, front month gas contracts are currently trading at 133p/Therm, 70% higher than at the end of February, with Sum-26 gas contracts similarly higher at 128p/therm.
Power market increases have also seen significant increases over the past two weeks, although the level of increases has been lower compared to gas markets given higher renewable output for the first half of March and weakening carbon emissions markets with political pressure to reform the EU Emissions Trading System (ETS) given the current energy crisis.
The full impact to UK businesses will only become clear as markets react to political developments, with a swift resolution to the crisis leading only to a temporary shock for this summer. Whereas longer term disruptions to energy supplies would increase the prospect of government intervention as in 2022 to protect businesses from prolonged higher prices.
Regardless, the economic effects will be felt with decreased consumer spending in the face of higher energy and transport costs. What’s more, the inflationary impact of the crisis likely to delay any plans by the Bank of England to make further cuts to interest rates this year.
The situation continues to develop on a daily basis, but if you are concerned about your business energy prices and what these changes could mean, please reach out to our Trading and Risk team directly here.
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