The US says it has now cut off all seaborne commercial trade to and from Iranian ports after initiating a naval blockade of maritime traffic on Monday.
This move follows recent peace talks in Pakistan ending without an agreement.
US vice president, JD Vance, has since accused Iran of economic coercion over its blockade of the Strait, with the US responding by threatening – and now enforcing – its own barricade.
The impact on energy prices
Speaking on an FDF webinar today, Stuart Lea, associate director at Sustainable Energy First, emphasised the impact the conflict has had on oil, gas and electricity prices.
The current conflict has created a stark contrast with 2023, when prices in gas and electricity were trending downwards.
“We were facing quite a bearish outlook on price,” he said, adding that this has been due to, in part, an increase in renewables in the UK this year.
While energy sources like wind and solar act as a vital buffer against shocks in gas prices, British Gas says “they’re not a silver bullet”. This is because they’re inherently intermittent.
“Balancing energy supply and demand will remain a key challenge, even as new renewable capacity is added to the grid,” the gas supplier said.
More recently, National Gas has assured that gas stocks in Britain will be able to meet demand this summer. That’s not overly surprising however – most people turn off their heating in the warmer months. To make matters worse, storage levels for gas are very low at the moment.
This has the market worried; and will result in a big jump in injections over the summer months.
“We will have to fill storage up for higher prices than we anticipated,” Lea added.
The supply of liquefied natural gas (LNG) also presents an issue. This year imports have been lower than previous, and prices have seen a steep climb after missiles caused significant damage to the world’s largest LNG export facility in Qatar. Supplies have also been knocked by the closure of the Strait.
As a result, competition for LNG has intensified, with the number of cargoes heading to the UK having fallen dramatically in recent weeks. We can expect volatility in this market due to increased exposure to international price drivers of LNG.
While gas and electricity prices aren’t as bad as they were in 2022 when the war between Russia and Ukraine began, Lea warns the effects of this latest geopolitical crisis will continue to impact the UK long after a conclusion is reached.
As such we can expect fuel and energy price volatility to feed well into winter 2026 and beyond.
Lea added: “We see a geopolitical crisis every quarter. So we might get through this one, but it doesn’t mean we’re through the geopolitical issues.”
In fact, the energy expert believes we’ll likely see another conflict not before too long; and advises organisations to “take a medium to long term view to manage energy price risks” in this unpredictable climate.
But he also admits that it’s anyone guess as to when prices will be at their lowest.
Beyond energy prices
Offering his thoughts, Raj Abrol, CEO of risk platform Galytix said this latest move from the US has pivoted the situation from a “price shock to a structural disruption of global trade”.
He continued: “The impact goes well beyond energy prices – it ripples through shipping routes, insurance premiums, supply chains and input costs across every sector.
“Oil is back above $100, shipping rates on the Middle East to Asia route are at a six-year high, and war-risk premiums have spiked over 50%. Interest rates were already unpredictable, inflation was already reaccelerating, and credit spreads were already widening.”
He adds that we can expect protracted volatility across all these indicators, with no return to stability in sight yet.
“That is the real challenge for lenders – when uncertainty becomes the baseline, the banks still relying on quarterly reviews and static risk models are flying blind.
“The knock-on effects do the real damage: a manufacturer whose input costs just jumped 30%, a logistics firm whose routes have doubled in length, an exporter who can no longer get cargo insurance at a viable price. None of that shows up in a filing until it is already a loss.”
UK growth to be seriously hampered
Meanwhile, the International Monetary Fund (IMF) fund has warned that the UK will be hit the hardest among the world’s richest countries, predicting that UK growth for the year will see a dramatic slash from its original forecast of 1.3% to 0.8%.
This is the biggest growth cut among the G7, with the UK lagging behind the US which is set to grow by 2.3%.
We’re in for a bumpy ride.
