British households could see their annual energy bills surge to £2,500 as escalating conflict in the Middle East sends wholesale gas prices soaring to levels not witnessed in nearly three years.
Gas prices have climbed 32 per cent, reaching their highest point since January 2023, following military operations by the US and Israel across Iran over the weekend.
The dramatic increase threatens to eliminate the benefit of April’s planned price cap reduction, which would have seen typical household bills fall by 6.6 per cent to £1,641.
Investment bank Stifel has warned that if European wholesale gas prices reach 100 per megawatt hour, the UK energy price cap could be pushed up by 52 per cent, matching the peak seen during the 2022 crisis triggered by Russia’s invasion of Ukraine.
The price surge stems from Qatar’s state-owned energy company halting production, a significant blow given the Gulf nation supplies a fifth of global liquified natural gas trade.
Iran has compounded market fears by claiming it has shut down the Strait of Hormuz, through which approximately one fifth of the world’s oil passes.
The country’s Revolutionary Guards have threatened to set ablaze any vessel attempting to navigate the critical shipping route, with reports emerging that a fuel tanker was struck by two drones and left burning in the strait.
Wholesale gas prices briefly spiked to 151p per therm on Tuesday morning before settling at 148p, following a 50 per cent jump the previous day.
The UK’s growing dependence on Qatari LNG imports leaves households particularly exposed to these disruptions.
Britons have been saddled with record high energy bills in recent years | PA
Simon Francis, coordinator of the End Fuel Poverty Coalition, said the immediate risk to consumers remains limited due to the price cap mechanism already being locked in for the spring quarter.
“Bills are effectively protected until at least 1 July 2026 because the April to June cap has already been set,” Mr Francis explained.
However, he cautioned that sustained high prices would feed into Ofgem’s next regulatory decision.
“If wholesale prices fall back, the impact may be limited. But if elevated prices persist, they will affect Ofgem’s next price cap decision in May, which takes effect from July,” he said.
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Mr Francis argued that the only permanent solution for households lies in reducing gas consumption through nationwide insulation schemes, expanding domestic renewable energy capacity, and reforming how energy is priced.
Analysts at Stifel have drawn parallels with the 2022 energy crisis, warning that prolonged disruption to gas exports could trigger a similar spike in household costs.
Richard Neudegg, director of regulation at Uswitch, noted that sustained elevated wholesale prices would force Ofgem to adjust the July price cap accordingly.
Prolonged disruption to gas exports could trigger a similar spike in household costs
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PAThe comparison site is urging consumers not currently locked into fixed tariffs to act swiftly.
“At the moment, there are still well-priced fixed deals available, up to an average £74 below the upcoming April price cap,” Mr Neudegg said.
He added that those switching now would also benefit from government energy bill reductions taking effect from 1 April.
Current market-leading deals include Outfox the Market at £1,509 annually, Fuse Energy at £1,515, and Eon Next at £1,543.