Energy UK Briefing: The situation in the Gulf and impact on energy prices

This briefing is updated regularly given the fast moving situation

Updated 25 March 2026

What does the current volatility in gas markets mean for UK households?

• It is currently too soon to tell how the recent spikes in gas prices will impact household bills in the UK, but a prolonged conflict could see these costs passed through to customers, seeing as the price of gas (wholesale costs) is the largest component of energy bills.
• The April to June 2026 price cap was confirmed at £1,641 on 25 February, before the conflict in the Middle East started.[1] Therefore, households on a standard variable tariff will not see the impact of higher gas prices on their bills until July. Households on a fixed tariff will also avoid the effect of the recent gas price spike through the length of their contract.
• A prolonged conflict will see the costs of ongoing volatility in gas markets passed through to customers, seeing as the price of gas (wholesale costs) is the largest single component of energy bills.
• While the final level of the July-September 2026 price cap will depend on how wholesale prices evolve over the coming weeks, if gas prices remain elevated, the cap will increase. The scale of any increase and potential impact on the October 2026 price cap will depend on the duration of current volatility in the market.
• Suppliers and the Government are closely monitoring the situation to best prepare for any possible impacts. If households are concerned, they should speak directly to their supplier.

How are business energy prices affected?

• UK electricity prices are already among the highest in the developed world, with prices for medium-sized businesses significantly above the European median.
• Significant wholesale price volatility creates uncertainty for businesses, which face difficult trade-offs between locking in prices for certainty and remaining exposed to potential price changes.
• Businesses have a variety of arrangements for their energy bills, often with bespoke contracts that best suit their needs.
• These are often long-term contracts, lasting between one and three years. Just like a household, those already on a fixed contract will not see their price change until that contract ends.
• However, businesses whose contracts are due for renewal soon, or those on variable or flexible tariffs, may already begin to see higher prices reflected. Businesses should speak to their supplier immediately if they are concerned.
• Energy UK has produced a full briefing with more detail on the impact of the conflict on non-domestic energy contracts on our website.
• In any case, energy costs are a significant expense for too many businesses. Energy UK is currently working in partnership with the CBI, calling for urgent government action to reduce persistent high business energy costs in our latest report.

Could future energy price caps increase if gas prices stay high?

• The next energy price cap period (July-September 2026) is currently being calculated using wholesale market data collected during Ofgem’s observation window. The 1st of April marks the point of being around 50% through the price cap observation window.
• The scale of any increase will depend on the duration of current volatility in the market. This means if prices fall back before the end of the observation window, the impact on the cap may be more limited. If prices remain elevated or increase further, the effect will be larger. At this stage, it remains too early to quantify this exactly.
• It is important to note that, so far, prices are still a long way from what the country experienced in 2022 following Russia’s invasion of Ukraine, where the price of gas went up to around ten times average levels. [2]

What is the difference between the types of energy companies out there?

• The volatility of oil and gas markets in recent weeks has seen a focus on ‘energy’ in a very broad sense, but it’s important to understand the difference between companies out there.
• Energy UK represents companies across the energy system, including power generators, infrastructure developers and energy suppliers. There are also companies involved in the production of oil and gas, and those that supply heating oil – Energy UK does not represent this part of the sector.
• Companies across the energy sector are continuing to invest billions of pounds in new infrastructure, including renewable generation, electricity networks, storage and flexibility technologies. These investments are essential to strengthening the UK’s energy security and reducing exposure to volatile international fossil fuel markets in the long term.

Why can’t suppliers simply absorb higher costs?

• The current price cap protects what people pay for their energy by limiting what suppliers charge them. The cap, however, doesn’t limit what suppliers pay for the energy on the market or how much they’re owed.
• Even the most successful suppliers only make a few pounds profit per household per year, on an average energy bill of around £1,700.
• Energy suppliers, like all businesses, should make a reasonable and appropriate profit. This is important for a successful and competitive energy market. During the 2022 energy crisis, more than 20 suppliers went bust because of unsustainable business models when gas prices spiked.
• Energy debt is also a significant and growing problem. We estimate energy suppliers currently shoulder around £5.5 billion of debt on their books. This has increased by about £1 billion in a year and shows a growing affordability issue.

What does this mean for homes reliant on heating oil?

• Across the UK, an estimated 1.7 million UK households rely on heating oil rather than mains gas or electricity to heat their homes. They are typically located in rural areas with no connection to the gas network and where there is limited grid capacity to support the use of electric heat technologies.
• Homes that rely on heating oil purchase fuel from an unregulated market and are exposed to the volatility of global crude oil prices. While supplies of gas are presently not an issue, heating oil users can be more vulnerable to supply shortages, which may lead to scarcity concerns and significant price spikes.
• The UK Fuel Distribution Association has written consumer advice addressing why heating oil prices are going up, and has recommended that households speak to their local distributors, and, where possible, delay purchasing for the time being.
• On 16th March, the Prime Minister announced £53 million in support for households using heating oil. Alongside this package of support, the Government committed to a series of measures to protect consumers and regulate the market.

Why is the price of electricity increasing when it is the cost of gas which is affected?

• In the UK, electricity prices are set by the last generator on the system needed to meet demand, which is typically a gas plant.
• This means that even when cheaper sources, such as renewables or nuclear, provide much of our electricity, the overall market price is still set by gas.
• Gas plants are essential for balancing our supply and demand, particularly when renewable generation varies. When gas prices rise however, so does the cost of running these plants, and this is reflected in the wholesale electricity price.

Is the UK’s gas supply at risk due to conflict in the Gulf?

• Our gas network is designed to be flexible and resilient, drawing on a wide range of sources to keep the lights on, homes warm, and businesses powered.
• For the time being, gas supplies remain stable. Around 40% of the UK’s gas supply comes from the North Sea, with most imports coming from Norway and the United States. Only around 2% of our gas supplies come from countries around the Gulf. [3]
• Britain also uses gas storage differently from many European countries. The system incorporates a mixture of slow, medium and fast-responding storage technologies.
• • As a result, direct comparisons with storage levels in other European countries can be misleading and do not always reflect how the UK meets its gas demand.

Will more drilling in the North Sea lower energy bills?

• The North Sea has played a historic and vital role in the UK’s energy system, which continues to this day in providing around 40% of the UK’s gas supply, but it is a maturing basin.
• While the long-term trajectory of the basin is clear, there is an opportunity for projects operating in the North Sea to provide a greater role in the UK’s supply of gas in the short-to-medium term.
• It should be noted however that new supply would not directly reduce energy bills, as the UK gas price largely mirrors that on international markets.

How can the UK reduce its exposure to gas price volatility in the future?

• As we build out more sources of low-carbon generation, gas plants will have to run less frequently, so gas will set the price of electricity less frequently.
• Building new, homegrown renewable and low-carbon power will reduce the impact of volatile wholesale costs, delivering energy security as well as affordable, stable bills.
• Additionally, rolling out electric heating and transport technologies, such as heat pumps, solar and batteries, will reduce households’ direct reliance on gas for heating, helping to shield them from gas price volatility, whilst also contributing to our energy security by strengthening our system.

About Energy UK

Energy UK is the trade association for the energy industry, representing companies investing billions of pounds to secure our country’s current and future energy needs.

From growing start-ups to major electricity generators, grid and infrastructure developers and energy suppliers, our members are driving change across power, heat, transport and flexibility.

We provide a collective voice for the sector, working with governments, regulators, charities and other organisations to provide crucial insight that shapes policy, offers solutions and promotes best practice.

Our broad view across the whole system supports evidence-based positions which are not tied to particular technologies, and are focused on delivering strategic benefits for people, businesses and the economy.

We champion initiatives such as our Vulnerability Commitment, which pushes suppliers to go beyond regulation to support customers with additional needs, and TIDE, the industry’s drive for greater inclusion and diversity. Through our Young Energy Professionals Forum, we support the development of future leaders. We are equally committed

For more information, please contact Energy UK at MPSupport@energy-uk.org.uk.

[1] Ofgem (2026), Energy price cap explained

[2] House of Commons Library (2023), Gas and electricity prices during the energy crisis.

[3] DESNZ (2024), Digest of UK Energy Statistics (DUKES)