Energy update: Trump extends Strait of Hormuz opening deadline

Separately, Iran has proposed a means to allow safe passage to vessels by submitting to Iranian oversight and fees.

Current energy costs reflect market concerns that this delay is to allow US forces time to get boots on the ground and seize Iran’s key oil export terminal, Kharg Island.

Energy costs remain volatile. Failure to comply with Trump’s new deadline of 6 April means the US will begin bombing Iranian power and desalination plants, and other key services. Iran has threatened to retaliate and strike the energy and water infrastructure of Gulf states supporting the US.

Conditional passage

Despite conflicting statements over how urgently Iran is seeking a resolution, talks continue in Pakistan. Iran has been given a 15-point plan for cessation of hostilities and has responded with new proposals. Negotiations don’t mean an end to hostilities.

Iran has separately proposed allowing passage through the strait, conditional on the ships not being from the US or its allies. Further, they submit to Iranian controls and pay a fee for safe passage – the ‘Tehran Tollbooth’.

This conflict seems unlikely to be resolved soon and it will take months for production and distribution facilities to return to their previous levels. Consequently, a shortfall in oil and gas will impact global energy costs, with some research indicating that, economically, the UK is likely to be the most affected country.

We are less vulnerable than in the energy crisis of 2022. This crisis is expected to have a greater impact on gas than on electricity costs. Currently, the European energy market is stable. European & UK gas reserves are at 28% and 36% respectively. Gas supply will be tight over the summer, though the increasing global supply of liquefied natural gas (LNG) over the next five years provides longer-term security.

The UK only generates around 27% of electricity from gas annually, and has significantly more electricity available from renewable sources, and from French and Danish generation via sub-sea interconnectors.

Vulnerable to higher costs

Electricity contract costs have remained stable following the initial spike, while gas contracts increasingly reflect the higher commodity cost. Electricity rates are mainly comprised of non-commodity cost, which are set to rise on 1 April. Operators should already have been notified by their electricity supplier of cost increases, typically ranging from £1 to £9 per day.

Current market conditions leave anyone close to their renewal window vulnerable to paying higher costs. Given many operators’ preference for one-year contracts, 10% and upwards of all contracts may be due to expire in the next three months.

However, these costs are much lower than in the previous energy crisis. Some operators, coming out of a three-year contract, may find that existing contract rates are broadly in line with those currently available. There is little benefit in moving on to deemed rates to wait for prices to fall, given they are much higher than available contract rates. Cost certainty is the key objective for most customers, who are recommended to:

1. Ensure they get a range of contract offers from different suppliers and contract lengths

2. Understand the key supplier terms and conditions, to be able to assess the best value

3. Avoid quotes being out of date by conducting research in as short a period as possible and choosing promptly

4. If using a broker, ensure they disclose their commission and if they have any penalty clauses if the contract doesn’t go live, or terminates early

5. Don’t be pressured into choosing by claims that you “have to decide today”.

Nationwide Energy offers the support you need to make your next energy contract transition smoother, deal with supplier issues, or review your energy consumption.

Contact Nationwide Energy

Tel: 02476 328995

Email: info@nationwide-energy.co.uk