With winter 2025-26 energy contracts being written and priced against the backdrop of Monday’s dramatic market movements, the implications of the Middle East crisis for consumers facing their heating bills in the coming months are becoming clearer — and they are not encouraging. The 40% surge in gas prices seen on Monday, if sustained even partially, is likely to feed through into higher energy tariffs for the 2025-26 heating season.
Energy suppliers purchase gas on forward markets, typically seeking to hedge a significant proportion of their anticipated requirements months in advance. However, suppliers also leave a portion of their purchasing to the shorter-term and spot markets, meaning that sustained high prices in those markets do feed through into supply costs and ultimately into the tariffs offered to customers. The higher that wholesale prices remain, and the longer they stay elevated, the more of that cost eventually passes through to households and businesses.
For UK households, the energy price cap mechanism provides some protection against the most extreme price movements in the short term. The cap, which limits the unit rate that suppliers can charge customers on standard tariffs, is reviewed periodically. If wholesale prices remain significantly elevated for an extended period, the cap is adjusted upward to prevent suppliers from being forced to sell below cost. This mechanism protects the industry from financial collapse but does not protect consumers from higher costs — it merely spreads and smooths the transition.
Businesses face a more direct exposure than households. Most commercial energy contracts do not benefit from the same regulatory protections as household tariffs. Businesses typically buy their energy on the wholesale market, either directly or through brokers, and their costs respond more quickly and directly to wholesale price movements. For energy-intensive businesses — manufacturers, data centres, food processors — the prospect of sustained high gas and electricity prices represents a significant additional cost that will need to be absorbed through higher prices, reduced margins, or both.
The broader economic context is important. The current crisis arrives at a point when the UK economy is still managing the legacy of several years of high energy costs and elevated inflation. Household budgets have been under sustained pressure, and many businesses have already worked through their energy cost buffers. A fresh period of high energy costs, coming on top of the existing pressures, risks tipping some households and businesses from manageable stress into genuine financial difficulty. The welfare consequences of the crisis — less visible than the dramatic market movements but ultimately more important — deserve close attention from policymakers.