UK Gas Prices Skyrocket Amid Rising Tensions in the Middle East
Gas prices in the UK have surged to unprecedented levels, nearly doubling in just a week (https://www.cityam.com/gas-prices-surge-as-qatari-plant-hit-by-iran-strikes/), as the conflict between the US and Iran intensifies. This dramatic increase is attributed to the 93% spike in wholesale gas prices, which directly impacts energy suppliers' costs and, consequently, household and business energy bills.
The price of gas briefly soared to 151 pence per therm, a level not seen since February 2023, before settling at around 148 pence. This surge follows a 32% jump on Tuesday, adding to the 50% rise on Monday.
Economists at Investec predict that higher energy prices will significantly boost inflation. For instance, the current oil price, if sustained, would contribute 0.2% to headline inflation through increased petrol prices. A sustained 40% rise in natural gas prices would further elevate inflation by approximately 0.7%, primarily through higher household utility bills.
Analysts at Stifel caution that any prolonged increase in wholesale gas prices could lead to a substantial adjustment in Ofgem's price cap. A tripling of gas prices could result in the cap rising to nearly £2,500 annually, a level not seen since Russia's invasion of Ukraine.
The initial gas price surge was triggered by a Qatari state energy company's decision to halt production of liquified natural gas (LNG) due to 'military attacks' by Iran. Qatar, the world's largest LNG export plant, supplies approximately 12-14% of Europe's LNG imports, making the situation particularly critical for the continent's energy security.
In other energy news, oil prices continued their upward trend, rising by 3.2% on Tuesday morning to $80 per barrel. However, Richard Hunter, head of markets at interactive investor, notes that oil price spikes often follow conflict outbreaks, but the duration and escalation of the conflict are more concerning than the immediate outlook, as many countries have accumulated stockpiles to sustain them through the coming months.
