Businesses across the UK are facing fresh uncertainty in the energy market as wholesale prices rise following escalating tensions involving the US, Israel and Iran.
Concerns over potential disruption to global oil and gas supplies have already begun to influence the commercial energy market. As suppliers review prices, withdraw some fixed-rate products and adopt a more cautious approach to long-term contracts, many are drawing parallels with the early stages of the Russia-Ukraine conflict, when energy prices became increasingly unpredictable.
Fewer fixed-rate options available
Recent movements in wholesale markets have led several suppliers to remove or reprice fixed-term tariffs at short notice.
While products are regularly reviewed in response to market conditions, businesses and brokers have noted a reduction in the number of fixed-price options currently available. Suppliers appear reluctant to commit to longer-term rates while there is uncertainty over future wholesale costs.
Global events continue to influence UK energy prices
Although the UK does not source most of its energy directly from the Middle East, events in the region can have a significant impact on global energy markets.
Any threat to oil and gas production or major shipping routes can affect wholesale prices worldwide, with suppliers factoring that uncertainty into their pricing.
After a period of relative stability, wholesale costs have started to rise again, creating additional pressure for businesses coming up for renewal or entering the market for new contracts.
Suppliers take a cautious approach
Energy suppliers are responding in different ways. Some continue to offer fixed contracts, while others are focusing more heavily on variable or shorter-term products that can be adjusted as market conditions change.
The challenge for suppliers is forecasting where prices will go next. With geopolitical tensions still evolving, many are taking a more cautious stance than they were earlier in the year.
As a result, businesses are increasingly reviewing their existing arrangements to understand how they compare with current market offerings. Areas receiving particular attention include:
- Contract end dates and renewal periods
- Historical pricing and usage patterns
- The value of existing long-term agreements
- Whether current contracts remain competitive in today’s market
For many SMEs, understanding the detail of previous agreements and pricing structures has become an important part of managing energy costs during another uncertain period.
A market in transition
It remains unclear how long current geopolitical tensions will continue or what their longer-term impact on energy markets will be. However, the effects are already being felt through higher wholesale prices, reduced availability of fixed-rate products and increased caution among suppliers.
For businesses, the months ahead are likely to require careful monitoring of energy costs and contract options. While the market is not experiencing the extreme conditions seen in previous energy crises, it is entering another period where flexibility, planning and a clear understanding of existing contracts is essential.
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