Energy Market Insight - UK Energy Prices and the Impact of Escalating Tensions with Iran

Market Summary 

Geopolitical tensions involving Iran have introduced a risk premium into global energy markets, increasing volatility across oil, gas and power trading.

UK wholesale gas prices have surged from roughly 70–80p/therm in February to above 150p/therm during recent market spikes. 

Electricity forward prices have strengthened alongside gas, with UK baseload power futures trading broadly in the £90–£100/MWh range.

Businesses approaching energy contract renewal should review procurement timing and risk exposure, as forward markets may remain volatile while geopolitical uncertainty continues.

Why events in Iran matter to UK energy prices

Iran sits at the centre of one of the world’s most strategically important energy corridors. Around 20% of global oil shipments pass through the Strait of Hormuz, a narrow shipping route connecting the Persian Gulf to international markets. The region is also a key export route for liquefied natural gas (LNG), particularly from Qatar, one of the world’s largest LNG suppliers.

Even when supply is not immediately disrupted, markets react quickly to geopolitical risk.

For the UK, the impact is indirect but still significant, primarily through three mechanisms:

Oil price volatility

Geopolitical tensions in the Middle East typically push oil prices higher as traders price in potential supply disruption. Oil remains an important benchmark for global energy markets and can influence sentiment across gas and electricity trading.

Gas market sensitivity

Since the European energy crisis, the UK and Europe have become increasingly reliant on global LNG imports. Any perceived risk to LNG shipments from the Gulf region can tighten supply expectations and drive higher wholesale gas prices, the primary driver of UK electricity costs.

Risk premiums in forward markets

Energy traders often price geopolitical risk into forward contracts before physical disruption occurs. This means contracts for future delivery periods can rise sharply during periods of instability.

Forward Curve Snapshot (UK Gas & Power)

Recent geopolitical tensions have triggered significant movements in the front end of the UK energy forward curve.

UK NBP Gas

Prompt UK gas prices have recently surged to around 150–157p/therm, reaching their highest levels in several years.

This represents a sharp increase from the 70–80p/therm range seen earlier in February.

Summer 2026 contracts had previously traded around the mid-60p/therm range, demonstrating how quickly geopolitical risk can reprice forward markets.

UK Power (Baseload)

Electricity forward prices have moved higher alongside gas because gas-fired generation frequently sets the marginal power price in the UK market.

Recent wholesale indicators show:

Day-ahead baseload power previously trading around £110/MWh during peak winter demand periods.

Spring–Summer 2026 contracts trading broadly around £75–£82/MWh prior to recent volatility.

UK power futures have recently traded within a £70–£107/MWh range, illustrating the scale of potential price movements.

What the forward curve is signalling

Current market structure suggests:

Near-term contracts are reacting most quickly, reflecting immediate geopolitical risk.

Winter delivery periods remain particularly sensitive, as traders assess supply security risks.

Longer-dated contracts remain relatively stable, though continued tensions could push prices higher.

The rapid repricing at the front of the curve highlights how quickly geopolitical developments can influence UK energy costs, even when the UK is not directly dependent on the affected region.

Three drivers behind the current market volatility

Several structural factors explain the speed of recent price movements:

1. Strategic importance of the Strait of Hormuz

Disruption to this shipping corridor would affect a significant proportion of global oil and LNG exports.

2. Global LNG competition

Europe and the UK now rely heavily on LNG imports. If supply from the Gulf becomes uncertain, global buyers compete more aggressively for cargoes, increasing prices.

3. Limited flexibility in the UK gas system

The UK has relatively limited gas storage capacity compared with some European markets, meaning wholesale prices can react quickly to perceived supply risks.

What UK businesses should be reviewing now

Periods of geopolitical uncertainty provide a useful opportunity for organisations to reassess their exposure to energy market risk.

Key considerations include:

Contract structure

Companies on flexible or pass-through contracts may experience wholesale price movements more quickly. Those on fixed-price contracts remain insulated in the short term but should understand when their current pricing protection ends.

Hedging strategy

Businesses with upcoming renewal dates or unhedged volumes may face higher prices if market volatility persists.

Budget forecasting

Energy market volatility can quickly affect cost projections. Reviewing budgets against potential price movements can help avoid surprises later in the year.

Risk management policies

Organisations should ensure procurement strategies remain aligned with their appetite for price risk and financial planning requirements.

If your fixed contract is approaching renewal

For organisations currently protected by fixed energy contracts but approaching renewal, market conditions over the coming months may be particularly important.

Three key considerations include:

1. Avoid leaving procurement until the final weeks

Waiting until a contract expiry date may expose businesses to short-term market spikes caused by geopolitical events or seasonal demand changes. 

2. Consider staged or flexible purchasing strategies

Some organisations choose to purchase energy in phases rather than fixing the entire contract at once, helping to spread risk across different market points.

3. Align procurement with organisational risk tolerance

Energy purchasing strategies should reflect both budget certainty requirements and an organisation’s appetite for exposure to market movements.

Key takeaways for businesses 

Geopolitical tensions can influence UK energy prices even without direct supply disruption.

Forward gas and electricity markets are currently experiencing increased volatility, particularly for near-term delivery periods.

Businesses approaching contract renewal should review procurement timing carefully to avoid locking in prices during short-term market spikes.

A structured procurement strategy, including risk management and staged purchasing, can help manage uncertainty.

Speak to our energy market specialists

Market conditions can change quickly during periods of geopolitical uncertainty. Having access to timely market insight and a clear procurement strategy can make a significant difference to long-term energy costs.

Sustainability Energy provides independent market intelligence and procurement support to help organisations manage price risk and secure competitive energy contracts.

If your organisation has an energy contract renewal approaching within the next 12–24 months, our specialists can provide:

A forward market review tailored to your contract timeline

 Insight into current pricing opportunities and risks

 Guidance on procurement strategies aligned with your organisation’s risk tolerance

To request a market review or discuss your upcoming renewal, contact the Sustainability Energy team.