Gas prices in the UK have nearly doubled as tensions between the US and Iran intensified over the weekend. The price of UK wholesale gas, which reflects the costs energy suppliers pay to producers for natural gas before selling to households and businesses, has surged by 93% this week alone. Prices briefly reached 151p per therm amid the Middle East conflict, a level not seen since February 2023, before settling back to approximately 148p.
This increase followed a 32% rise on Tuesday, adding to a 50% jump on Monday. Sanjay Raja, chief UK economist at Deutsche Bank, noted that the spike in prices could “raise inflation and dampen growth.” He added that any escalation could affect risk premiums, freight disruptions, and precautionary stock-building in oil and gas markets.
The surge in gas prices has prompted a significant cost-of-living warning. Electricity prices, linked to wholesale gas costs, could cause adjustments to the energy price cap set by Ofgem, impacting household bills. Economists at Investec stated that higher energy prices would likely increase inflation. In the UK, the current oil price level could add about 0.2% to headline inflation through higher petrol prices. A sustained 40% rise in natural gas price futures could further boost inflation by approximately 0.7% via higher household utility bills.
The initial surge in gas prices followed an announcement by a Qatari state energy company that it had halted liquefied natural gas (LNG) production due to “military attacks” by Iran. The facility, the world’s largest LNG export plant, is crucial for Europe, with Qatar supplying around 12-14% of the continent’s LNG imports.
Meanwhile, oil prices rose by 3.2% on Tuesday morning to $80 a barrel. Richard Hunter, head of markets at interactive investor, commented that while oil price spikes often follow conflict outbreaks, the escalation and duration are more concerning than the immediate outlook, as many countries have accumulated stockpiles that could sustain them in the coming months.
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