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What’s Happening in the Middle East, And Why It Matters for Energy
The situation in the Middle East has escalated dramatically.
In simple terms:Israel and the US carried out major military strikes across several large Iranian cities.
Senior Iranian leadership was targeted and reportedly killed.
Iran has responded with missile and drone attacks.
Iran has also declared the Strait of Hormuz closed.
That last point is the big one for energy markets.
What This Means for UK Businesses
1. Gas prices have jumped sharply
The UK gas market (NBP) has reacted fast.
- Mid-February: ~76p per therm
- Monday morning: ~91p per therm
- Increase: nearly 19%
That’s a significant move in just days.
The UK relies heavily on LNG imports, and some of those come from Qatar. If Qatari cargoes are delayed or blocked, the UK has to attract alternative shipments from the US or West Africa, and that means paying more.
2. Electricity prices follow gas
In the UK, gas sets the price of electricity. So when gas jumps, power prices usually follow. Summer 2026 electricity has moved from roughly £70/MWh to £84.50/MWh — around a 20% increase.
If gas remains volatile, power will likely stay volatile too.
3. Oil prices could move further
Oil has already reacted. Depending on how long disruption lasts:
- Short-term shock: $80–85 per barrel
- If the Strait stays closed: $90–100
- If energy infrastructure is damaged: $120+
Currently we are at $78.6 per barrel. Higher oil feeds into transport costs, logistics, manufacturing inputs and general inflation pressure.
Why Markets Are So Volatile
Energy markets dislike uncertainty.
Right now we have:
- Military escalation
- Retaliation
- A major global shipping route blocked
- Insurance risk
- Political unpredictability
Traders price in risk immediately, often before the physical supply impact is fully felt. That initial spike is often called a “fear premium” or “war premium.”
What Happens Next?
This is a very fluid situation.
Two key things to watch:
- How long the Strait remains effectively blocked
- Whether energy infrastructure (e.g. in Saudi Arabia or UAE) is damaged.
If the situation stabilises quickly, some of the panic premium may ease.
If it escalates further, volatility could increase again.
In Practical Terms for Businesses
- Expect short-term price spikes.
- Expect volatility.
- Avoid knee-jerk decisions.
- Monitor closely before making major procurement moves.
- Fixed vs flexible strategy decisions should reflect your risk appetite and contract position.
Why the Strait of
Hormuz Matters
The Strait of Hormuz is one of the most important shipping routes in the world.If it’s blocked:
Around 20% of the world’s LNG (liquefied natural gas) and oil passes through it.
Oil and gas shipments from Qatar, Saudi Arabia, UAE, Iraq and Kuwait cannot move freely.
Ships are turning around or waiting outside the region.
Insurance for ships travelling through the area has spiked or become unavailable.
Global buyers compete for fewer available cargoes.
That competition pushes prices up.
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