The escalating conflict in the Middle East, specifically the US-Israel war on Iran and its disruption of liquefied natural gas (LNG) shipments through the Strait of Hormuz, is set to drive British household energy bills to their highest level in two years this summer, reviving political pressure on Energy Secretary Ed Miliband to change course. Miliband, who promised cheaper bills as part of his clean power plan, now faces a crisis that threatens to deepen the cost-of-living strain on millions of households.
Households brace for a costly summer
The energy price cap will rise by 13% in July 2026, pushing the typical annual bill to approximately £1,862 – the highest since early 2024. That increase follows a period of sustained volatility in global wholesale gas markets triggered by the intensifying US-Israeli military campaign against Iran. Iran has responded with attacks and threats against shipping in the Strait of Hormuz, a narrow waterway that handles a significant share of the world’s LNG and oil exports. Shipping traffic through the strait has dropped sharply, and the resulting supply fears have pushed UK wholesale gas prices up by 40–50% in the days after the escalation.
Britain is far from alone in feeling the pain, but its particular exposure stems from the structure of its energy market. When domestic gas production, pipeline imports from Norway, and storage withdrawals are insufficient to meet demand, the country must turn to the global LNG market – where spot cargoes are now scarcer and more expensive. Crucially, because gas-fired power stations often set the wholesale electricity price under the marginal pricing model used across most of Europe, spikes in gas prices translate directly into higher electricity costs even when renewable generation is abundant. The same dynamic was at play during the 2022 energy crisis, triggered by Russia’s full-scale invasion of Ukraine, which left many households still nursing debts of more than £4 billion to their suppliers. The new price shock risks trapping those same households in a persistent cycle of arrears.
How global LNG markets drive UK prices
After the 2022 crisis, Britain bet heavily that plentiful supplies of LNG from the Gulf and elsewhere could permanently replace the Russian pipeline gas that Europe lost. That bet is now unravelling. The disruption to LNG shipments through the Strait of Hormuz – a chokepoint through which millions of barrels of oil and significant volumes of LNG pass each day – has thrown the global market into turmoil. Although the UK’s overall gas supply is relatively diverse, drawing on North Sea production, Norwegian imports, and interconnectors with continental Europe, it remains acutely sensitive to the price of internationally traded LNG. Direct imports from Qatar, for example, accounted for only about 1% of UK gas supply in 2025, but the global nature of the market means that any shortfall in supply from the Gulf pushes up the price of every LNG cargo competing for European buyers. National Gas has said that UK supply should meet demand over the summer, primarily from the UK Continental Shelf and Norway, but the wholesale price is still set by the cost of the marginal cargo – which is now far more expensive.
The result is that gas does not just set gas prices in Britain; it sets electricity prices too. The paper from the Common Wealth thinktank, written by economist Patricia Pino, a doctoral candidate at University College London, explains the problem clearly: gas demand is not falling fast enough relative to the decline in domestic production and the surge in winter peak requirements. That gap is being filled by costly LNG, which then determines the price of both gas and electricity for most consumers. The 2022 crisis demonstrated the same vulnerability, and the current situation is a dangerous sequel.
Government’s incomplete answer
Miliband has acknowledged that de-escalating the Middle East conflict is essential to lower oil and gas prices, and he has reaffirmed his commitment to accelerating the transition to clean, homegrown power as the long-term solution. The government has already announced measures designed to “break the link” between gas and electricity prices: encouraging fixed-price contracts for older renewable and nuclear generators, increasing the electricity generator levy – a windfall tax on certain generators – from 45% to 55%, and speeding up the deployment of clean energy through earlier renewables auctions, use of public land, and faster grid infrastructure. These steps aim to reduce the role of gas in setting electricity prices and, over time, provide cheaper, more stable power.
But Pino’s paper argues that the government must go further and act now. She recommends direct intervention in the gas and electricity markets. For gas, she proposes retaining as much domestic production as possible for British use by making it cheaper than European gas – an export levy would achieve this – and nationalising Centrica’s Rough storage facility to create a buffer stock that can smooth out peak prices. For electricity, she envisions the state buying power at a fixed price from clean providers and allocating it to suppliers, rather than waiting for a household bill crisis and then subsidising it with £23 billion of emergency spending. The logic is that a few billion pounds spent upfront to change the incentives that make the emergency price apply so widely would be far more efficient than picking up the pieces after the fact.
The clock is ticking
Timing, Pino stresses, is everything. Between April and September this year – while demand is still relatively low – the state can take four concrete actions: impose an export levy on domestic gas to keep it in the country; fill a nationalised Rough storage facility before winter; signal to international suppliers that Britain will support imports before cargoes are committed elsewhere; and move parts of the electricity system off gas-indexed pricing before wholesale spikes feed into retail bills. None of this is simple. The European Union would almost certainly object to energy taxes that distort the single market, and the EU’s carbon border adjustment mechanism, due to come into force this year, adds another layer of complexity to any British intervention in cross-border power pricing. Yet delay, the paper warns, leaves the United Kingdom dangerously exposed to conditions it cannot control.
Immediate intervention would shift the UK from merely bracing for impact to actively managing supply, demand and prices. Miliband is right that Britain needs clean power by 2030 as the only durable answer to both climate change and price volatility. But that vision does not help households this winter. Pino’s question – what can be done before winter this year to stave off a cost-of-living crisis? – has an answer that, according to her analysis, is well within the government’s reach. The question now is whether Miliband, with critics including former Labour prime minister Sir Tony Blair circling, will choose to act before the next price cap announcement locks in even higher bills. The planet may need net zero by 2050, but British households need relief this summer. The two imperatives are not in conflict – but bridging the gap between them requires a government willing to intervene in markets it has long left to their own devices.
