British businesses are staring at another energy cost shock after wholesale gas prices jumped around 5 per cent, triggered by Donald Trump declaring the ceasefire with Iran “over” following a fresh wave of US strikes and renewed attacks on tankers in the strait of Hormuz.
The benchmark Dutch front-month gas contract at the TTF hub rose €2.424 to €49 per megawatt hour, touching €49.76 at one stage, its highest level since 11 June. The British front-month contract climbed 6 pence to 116.75p per therm.
The trigger was Trump’s declaration that the memorandum of understanding intended to end the conflict with Iran was “over”, after both sides resumed hostilities. The US launched a new round of strikes and Tehran hit American bases in the Gulf, while several tankers were attacked in the strait of Hormuz on Tuesday.
For UK firms, the timing is grim. Wholesale energy costs had been easing since mid-June, and oil had only recently slid back to pre-war levels as shipping cautiously returned to the waterway. That recovery now looks to have been unwound in a matter of hours.
Why the strait matters to your energy bill
About a fifth of the world’s liquefied natural gas supplies typically pass through the strait of Hormuz. Britain does not buy much LNG directly from the Gulf, but gas is priced on a global market, so any squeeze on Qatari cargoes pushes up the wholesale prices that feed through to the fixed and variable contracts UK businesses sign.
Tuesday’s attacks underlined how fragile the reopening was. A Qatari LNG tanker was at risk of exploding and a Saudi crude tanker was damaged near the strait, prompting maritime authorities to raise the threat level for vessels transiting the waterway to severe. The Qatari tanker is awaiting salvage once a fire on board has been extinguished.
Analysts at Engie EnergyScan said: “The attacks, including a Qatari LNG carrier, reignited supply risk concerns, prompting a swift risk premium rebuild as shipping traffic through the strait remains well below normal.”
An October deadline
The International Energy Agency warned on Tuesday that if the strait is not fully reopened before October, global LNG supply could record its first annual decline since 2012. That would land just as the northern hemisphere heads into winter, when demand, and prices, are at their most unforgiving.
That is an uncomfortable prospect for a country already carrying the highest electricity costs in the G7, where gas typically sets the price of power. Every sustained move higher in the wholesale gas market flows through to the electricity bills of manufacturers, hospitality operators and high street firms alike.
What business owners should take from this
The lesson of the past week is that the energy market will reprice violently on a single statement from the White House, in either direction. Firms that assumed the worst was over when US strikes first rattled the ceasefire in May have been caught out twice.
For owners weighing up energy contracts, that argues for caution. Those on variable or out-of-contract rates are the most exposed to further spikes, while anyone banking on a calm autumn to fix at lower prices may find the window has already closed. Stress-testing cash flow against another winter of elevated gas prices is no longer a pessimist’s exercise. It is simply prudent planning.
