The UK energy market is bracing itself for another cost shock, as wholesale gas prices jumped by around 5 per cent. This increase was triggered by a statement from 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 by €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 timing is particularly grim for UK firms, as wholesale energy costs had been easing since mid-June. The oil market had only recently slid back to pre-war levels as shipping cautiously returned to the waterway. This recovery now appears to have been unwound in a matter of hours.
The strait of Hormuz is a critical waterway, and its closure or disruption has a significant impact on global energy supplies. About a fifth of the world's liquefied natural gas supplies typically pass through this strait. 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.
The recent attacks on tankers in the strait have 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 warn that if the strait is not fully reopened before October, global LNG supply could record its first annual decline since 2012. This would land just as the northern hemisphere heads into winter, when demand, and prices, are at their most unforgiving. For a country already carrying the highest electricity costs in the G7, this is an uncomfortable prospect.
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. This argues for caution in energy contract planning, particularly for those on variable or out-of-contract rates. Stress-testing cash flow against another winter of elevated gas prices is no longer a pessimist's exercise, but simply prudent planning.
