The market’s invisible hand has just dealt British households a very expensive card. As the first reports of military action in the Gulf filter through the screens in Canary Wharf, the immediate verdict is brutal: energy bills are heading north, and fast. Brent crude has already spiked 12% in early trading, and NatGas futures are following suit with a vengeance. This is not a temporary blip; this is a repricing of geopolitical risk that will hit every household’s bottom line.
Let’s strip away the sentiment and focus on the numbers. The UK imports roughly 40% of its natural gas, and a significant portion of that transits through the Strait of Hormuz. With the region now a war zone, insurance premiums for tankers have trebled overnight. This cost will be passed straight through to the wholesale price, and from there to your direct debit. My models suggest an immediate 15% to 20% increase on the cap for Q2, with further upside if the conflict widens.
The irony is that this surge comes at a time when the government has been signalling a soft landing for inflation. The Bank of England will be watching this closely. A supply shock of this magnitude will feed into CPI within two months, potentially undoing all the progress we’ve seen since last autumn. The MPC will now face an agonising choice: hold rates to fight inflation or cut to support the economy. Either way, bond markets will have their say, and gilt yields are already pushing higher.
For households already stretched by mortgage rate rises, this is a hammer blow. The typical dual-fuel bill, which had been expected to fall to around £1,600, could now jump back above £2,000. The Chancellor’s fiscal headroom, which looked precarious enough, is now vanishing. Higher inflation means higher index-linked debt servicing costs. The Treasury’s war chest is empty, and a war in the Gulf means we will need it.
Capital is already fleeing risk assets. The FTSE 100 is down 3% on the open, with oil and defence stocks the only green in the screen. That tells you everything about market sentiment. Investors are pricing in a prolonged conflict, not a surgical strike. If the Strait of Hormuz is effectively closed for even a week, the economic shock will dwarf the 1973 oil crisis.
My advice to readers: fix your energy tariff now if you can. The days of cheap power are over for the foreseeable future. This is not panic; it is risk management. The market is sending a signal, and those who ignore it will pay the price.
