Energy UK Briefing: The situation in the Gulf and impact on energy prices

March 2026

What does the current volatility in gas markets mean for UK households?

• It is currently too soon to tell how the recent spikes in gas prices will impact household bills in the UK, but a prolonged conflict could see these costs passed through to customers, seeing as the price of gas (wholesale costs) is the largest determinant of whether the price cap goes up or down.
• Households on a standard variable tariff are protected until June under the most recently announced price cap set at £1,641.[1] Households on a fixed tariff will also be protected through the length of their contract, or until the end of June, whichever comes latest.
• Suppliers and the Government are closely monitoring the situation to best prepare for any possible impacts. If households are concerned, they should speak directly to their supplier.

How are business energy prices affected?

• Unlike households, businesses are not protected by the energy price cap. Instead, they benefit from more flexibility and personalised energy tariffs that best suit their needs.
• These are often long-term contracts, lasting between one and three years. Just like a household, those already on a fixed contract will not see their price change until that contract ends.
• However, businesses whose contracts are due for renewal soon, or those on variable or flexible tariffs, may already begin to see higher prices reflected. Businesses should speak to their supplier immediately if they are concerned.
• In any case, energy costs are a significant expense for too many businesses. Energy UK is currently working in partnership with the CBI, calling for urgent government action to reduce persistent high business energy costs in our latest report.

Could future energy price caps increase if gas prices stay high?

• It is still too early to make certain predictions about what the next price cap period (July-September 2026) will look like, but it is important to note that, so far, prices are still a long way from what the country experienced in 2022 following Russia's invasion of Ukraine, where the price of gas went up to around ten times average levels.[2]
• If current gas prices remain as high as they are for several more weeks, then we would expect this to have a material impact on the future price cap.

What does this mean for homes reliant on heating oil?

• Across the UK, an estimated 1.7 million UK households rely on heating oil rather than mains gas or electricity to heat their homes. They are typically located in rural areas with no connection to the gas network, or in areas where there is limited grid capacity to support the use of electric heat technologies.
• Homes using heating are not protected by the energy price cap and are instead exposed to the volatile pricing of crude oil prices, also impacted by the conflict.
• The UK Fuel Distribution Association has written consumer advice addressing why heating oil prices are going up, and has recommended that households speak to their local distributors, and, where possible, delay purchasing for the time being.

Why is the price of electricity increasing when it is the cost of gas which is affected?

• In the UK, electricity prices are set by the last generator on the system needed to meet demand, which is typically a gas plant.
• This means that even when cheaper sources, such as renewables or nuclear, provide much of our electricity, the overall market price is still set by gas.
• Gas plants are essential for balancing our supply and demand, particularly when renewable generation varies. When gas prices rise however, so does the cost of running these plants, and this is reflected in the wholesale electricity price.

Is the UK's gas supply at risk due to conflict in the Gulf?

• Our gas network is designed to be flexible and resilient, drawing on a wide range of sources to keep the lights on, homes warm, and businesses powered.
• For the time being, gas supplies remain stable. Around 40% of the UK's gas supply comes from the North Sea, with most imports coming from Norway and the United States. Only around 2% of our gas supplies come from countries around the Gulf. [3]
• Britain also uses gas storage differently from many European countries. The system incorporates a mixture of slow, medium and fast-responding storage technologies.
• As a result, direct comparisons with storage levels in other European countries can be misleading and do not always reflect how the UK meets its gas demand.

Will more drilling in the North Sea lower energy bills?

• The North Sea has played a historic and vital role in the UK's energy system, currently providing around 40% of the UK's gas supply, but it is a maturing basin. Even with new extraction, it would not meaningfully boost our domestic supply or bring down energy bills in the short term.
• Fundamentally, even if new projects were developed, the gas produced would still be sold on international markets, where prices are set globally. This means that even increased domestic production would not shield the UK from movements in global gas prices.
• While there may be economic arguments for new drilling, it would not be enough to make a considerable impact on our homegrown gas supply.[4]

How can the UK reduce its exposure to gas price volatility in the future?

• As we build out more sources of low-carbon generation, gas plants will have to run less frequently, so gas will set the price of electricity less.
• Building new, homegrown renewable and low-carbon power will reduce the impact of volatile wholesale costs, delivering energy security as well as affordable, stable bills.
• Additionally, rolling out clean heat technologies, such as heat pumps, solar and batteries, will reduce households' direct reliance on gas for heating, helping to shield them from gas price volatility, whilst also contributing to our energy security by strengthening our system.

About Energy UK

Energy UK is the trade association for the energy industry, representing companies investing billions of pounds to secure our country's current and future energy needs.

From growing start-ups to major electricity generators, grid and infrastructure developers and energy suppliers, our members are driving change across power, heat, transport and flexibility.

We provide a collective voice for the sector, working with governments, regulators, charities and other organisations to provide crucial insight that shapes policy, offers solutions and promotes best practice.

Our broad view across the whole system supports evidence-based positions which are not tied to particular technologies, and are focused on delivering strategic benefits for people, businesses and the economy.

We champion initiatives such as our Vulnerability Commitment, which pushes suppliers to go beyond regulation to support customers with additional needs, and TIDE, the industry's drive for greater inclusion and diversity. Through our Young Energy Professionals Forum, we support the development of future leaders. We are equally committed to our team and are proud to be recognised as a 'Gold' Investors in People employer.

For more information, please contact Energy UK at [email protected].

[1] Ofgem (2026), Energy price cap explained

[2] House of Commons Library (2023), Gas and electricity prices during the energy crisis.

[3] DESNZ (2024), Digest of UK Energy Statistics (DUKES)

[4] NSTA (2026); Production and expenditure projections