The global energy market is experiencing its most severe supply disruption since the 1973 oil crisis. Escalating military engagements in the Strait of Hormuz have reduced crude throughput by 40 per cent in the past 72 hours, with Iran’s Revolutionary Guard deploying naval mines and anti-ship missiles that have halted nearly all commercial tanker traffic. Brent crude surged past $140 per barrel this morning, a level not seen in over a decade, and analysts at Goldman Sachs now forecast a sustained premium above $160 if the blockade persists beyond two weeks.
The immediate consequence for British households is stark. The UK’s wholesale gas price, which is indexed to oil in many long-term contracts, jumped 35 per cent overnight. Ofgem’s price cap, already at a record £3,549 per year, will inevitably rise again when it is next adjusted in April. The typical dual-fuel customer could face annual bills exceeding £5,000, a figure that would push millions of families into fuel poverty. The Resolution Foundation estimates that one in four households already spends more than 10 per cent of disposable income on energy; that proportion could double.
This is not merely a price spike of a few pence per litre at the pump. The physics of our energy infrastructure means that oil underpins everything: transportation, fertiliser production, plastics, and petrochemicals. When crude spiked to $130 in 2008, it triggered a global recession. Today, the system is far more brittle. Global spare capacity, historically held by Saudi Arabia, is estimated at less than 2 million barrels per day, most of it heavy sour crude unsuitable for the light-sweet refineries that dominate Europe and Asia. The US Strategic Petroleum Reserve, drawn down repeatedly last year, is at its lowest ebb since 1982.
The government has activated the emergency “Supply Disruption Protocol” for the first time. This allows the Business Secretary to direct refineries to prioritise domestic heating oil and diesel, but it cannot create new molecules. The UK’s only remaining refineries, at Fawley and Grangemouth, are already operating at near capacity. A prolonged blockade will mean rationing. The Department for Energy Security and Net Zero has quietly dusted off plans for fuel coupons, a system not used since the 1950s.
What does this mean for the energy transition? Paradoxically, the shock could accelerate it. The IEA’s executive director has stated that “high fossil fuel prices are the best incentive for energy efficiency and renewables.” UK wind generation set a new record of 21 GW in January, but storage capacity remains negligible. The government’s net zero strategy, already watered down by the Prime Minister, will be tested as never before. The current crisis lays bare the vulnerability of a system that burns 85 million barrels of oil every day.
For now, the physical reality is that every litre of diesel burned in a tractor, every tonne of jet fuel consumed at Heathrow, every plastic bottle produced, originates from these same constrained molecules. The Strait of Hormuz sees 20 per cent of global oil supply pass through its 21-mile-wide channel. The Iranian navy can simply throw a spanner in the machine. And it has.
The Bank of England is due to update its inflation forecasts tomorrow. Expect a revision that sends sterling sliding. The trade deficit, already at 6 per cent of GDP, will widen further. This is not a temporary blip. The structural factors that brought us here, decades of underinvestment in alternative energy and the geopolitical brittleness of Middle East supply, will not be resolved in weeks. The age of cheap energy is over. We must now navigate the painful adjustment to a new reality: one where the price of oil reflects not just extraction cost, but the true geopolitical risk embedded in every barrel.
