U.K.Energy in A Conflicted World.

 

GLOBAL INSECURITY AND POLITICAL EXTREMISM

HOW IS THE UK AFFECTED?

The Strait of Hormuz Explained

Background

On February 28^th, 2026, Israel and the United States began a campaign of military strikes against Iran. In response, Iran launched air strikes against Israel and U.S. military bases plus other targets in many nearby Arab states including energy infrastructure. And additionally, Iran both threatened, and then acted against, ships travelling through the Strait of Hormuz, the narrow sea lane which links the Arab/Persian Gulf to the Gulf of Oman and beyond, to the wider sea. The result of the Iranian Gulf of Hormuz air strikes resulted in a massive decline in shipping traffic in the Strait of Hormuz thus
curtailing the export of oil and gas from the Persian Gulf. By mid-March 2026 the International Energy Agency estimated that around 20 million barrels of oil had been affected by the Iranian-imposed reduction in shipping volume in the Strait of Hormuz, with oil production cut by at least 10 million barrels in the Gulf countries, equivalent to about 10% of global production. Liquefied natural gas exports from the region, notably from Qatar and the United Arab Emirates, have also been severely interrupted. The result of this disruption to energy supplies has been a sharp rise in the prices of oil, other petroleum products and natural gas in international markets. Brent crude [an international benchmark price for oil] rose from around $70 a barrel, pre-conflict, to over $100 a barrel, with volatility in prices resulting from the uncertainties of the developing situation which also contains the terrible possibility of military escalation.

Effects on the UK.

The initial economic consequences of the conflict were immediately felt globally. This single act has disastrous potential for the world. As an example, U.K. wholesale natural gas prices rose by roughly 75% between late February and 23 March 2026 together with other petroleum-based products, such as jet fuel and heating oil, with attendant costs inevitably increasing sharply. The Persian Gulf is also an important hub for fertilizer production and exports; thus, fertilizer prices have also risen, raising agricultural costs and potentially, threatening future crop yields. Petrol prices have risen between 28 February and 23 March, by approximately 14 pence a litre (10%) while diesel prices have risen by 29 pence a litre, (about 20%) and farmers have reported large increases in the costs of their fuel and fertilizer. The National Farmers’ Union has already warned that food prices will rise due to the higher costs of energy and fertilizer while the manufacturers’ trade body, Make UK, has underlined the impact of high industrial energy costs on the manufacturing sector.

Prior to the conflict, the U.K. inflation rate had been expected to fall from 3% at the beginning of 2026 to closer to 2% from April 2026, remaining at the lower rate for the rest of the year. It remains difficult to forecast likelihoods, as uncertainty over the duration and extent of the Middle East conflict continues, but the Bank of England had a shot on 19 March 2026 and suggested that the CPI [Consumer Price Inflation] would likely remain between 3% and 5% for the rest of this year. The Bank’s Monetary Policy Committee [MPC] on the same day announced that its main interest rate continued at 3.75%.

As the UK is a net energy importer, higher energy costs are almost certain to lead to UK economic activity weakening. Just yesterday [May 28] we learnt that household energy prices will rise by 13% a year in July -- an average increase for households of £221 a year--as households continue to pay the price for Trump's disastrous war with Iran. Indeed, the rise in energy prices has led to a record high level of domestic energy consumer debt, totalling £444.15 billion at the beginning of 2025, up 150% since late 2021.

Prior to the conflict, the Office for Budget Responsibility had forecast GDP growth at 1.1% in 2026 Forecasts for UK GDP growth in 2026 have now been cut, with slightly varying figures suggested for growth: Barclays, and KPMG, 0.7%; Oxford Economics, 0.4%; Pantheon Macroeconomics, 0.6%.   to  The Government has taken steps to address energy poverty, including proposed reforms to winter support schemes and an ambitious Energy Debt Relief Scheme which is well-intentioned and gratefully received, but which has added £2.4 billion a year in interest over 14 years. The rise in energy costs is painful, not only domestically but importantly over the widely-varied business sector, much of which is energy-dependent and therefore hugely handicapped by the attendant spiralling costs.

Slower GDP growth maybe the result leading to downward pressure on inflation as reduced demand for goods and services leads to, at least, some firms pricing more competitively in order to attract more customers. However this is a slow and unsteady process which could easily be overwhelmed by sudden oil and gas supply shocks pushing up prices against a background of continuing global turmoil.                                      

The above summary outlines some inevitable consequences of global conflict and political extremism not necessarily initially involving the U.K. but nonetheless hugely affecting national and domestic economic life.