Energy costs separate due to Gulf crisis

Differences in global supply and demand pressures between oil, gas and electricity mean that costs are decoupling, with oil under the greatest pressure, followed by gas.

Market update

The US blockade of Iranian ports and related shipping, alongside Iranian troops boarding other vessels, reflects escalating tensions in the Gulf.

While neither party has an appetite to resume hostilities there is no progress toward a negotiated solution.

Understandably, this is pushing prices higher due to the blockade of oil exports, with production further scaled back as it has no outlet. Therefore, it will take longer to resume full production when a resolution is reached.

This week’s comments by German Chancellor Friedrich Merz that the US is being humiliated in negotiations with Iran, laid bare the rift in US – EU relations and a widely held belief that the US has no easy way out of this ill-conceived campaign. Currently, oil costs are outstripping both electricity and gas.

While the US is self-sufficient for gas, it relies on the Gulf for oil & petrol supplies. Gas prices can be expected to rise in May, driven by increasing Asian demand from summer air conditioning.

Many Asian countries have allowed more coal-powered generation to offset gas demand and avoid further cost increases.

The gap between UK & European gas and electricity costs is expected to widen.

Electricity is much less reliant on gas generation than it was in the energy crisis of 2021/22.

Due to much greater renewable generation and high output from French Nuclear plants, which experienced a range of issues in the previous crisis.

While electricity costs may rise further, they will be decoupled from gas price increases. Gas storage in the UK & EU is around 30%. Demand will be maintained as the UK & EU countries refill gas reserves.

Business energy costs

Increased commodity costs over the last few weeks have impacted gas more than electricity contract rates.

Compared to pre-conflict rates, average unit rates have increased by 2.7ppkW on electricity and 1ppkW on gas. For customers coming out of contract, prices may be in line with existing costs.

However, new businesses may be agreeing to rates above their budgeted costs.

While pubs with 6-12 months before contract end may wish to delay a decision, customers closer to renewal may wish to consider fixing now, as prices may rise in the short-term, depending on events in the Gulf and elsewhere.

Larger businesses with higher consumption, and particularly operating flex purchase, should not expect prices to fall within range until July at the earliest.

It’s certainly true that 2026 will not be a year of abundant gas supply weighing on prices.

• Credit: Graph produced by Cornwall Insight in conjunction with Drax Energy Solutions, 30/04/2026

Supplier challenges

There is a depressing familiarity with much of the supplier feedback:

• Delaying changes of tenancy – worryingly, we are seeing suppliers demand more information when the change relates to a tenancy at will (TAW). They rely on provisions in the RECCo Code to make additional enquiries where it’s a short-term tenancy
• Suppliers appear wilfully ignorant of the customer’s situation and refuse to act on billing issues, forcing the matter to be raised to the energy ombudsman
• Disconnections continue at a high rate, with suppliers demanding all or most of the debt to stop action

For customers taking on a new business, deemed rates are rising, with unit rates roughly double the best contract rates.

As a result, lengthy periods on deemed rates undermine the long-term success of new pub businesses.

For pubs approaching the end of contract, it’s crucial to get customer-focused advice on your options and let you decide.

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