What does the situation in the Middle East mean for my energy bills?
What’s happening in the Middle East?
The US and Israel escalated tensions in the Middle East with strikes on Iran on 28 February. Iran has responded with counter-strikes on targets in multiple countries. It has also closed the Strait of Hormuz, which is a key shipping route for oil and gas. At this point, it’s unclear how long the situation will last.
This has led to a spike in oil prices and, because gas prices are linked to oil prices, a spike in wholesale gas prices. Gas has risen by 30% to the highest level in more than three years and, because gas plays a key role in electricity pricing, electricity is likely to increase in price as well.
What does this mean for energy bills?
This means that it currently costs energy suppliers a lot more to buy energy to supply customers with. As a result, they have either removed their existing deals from the market or repriced them so they’re more expensive than they were. This means that customers have fewer options when it comes to switching to deals with savings.
Is this the same as the energy crisis in 2021?
While both situations have been triggered by military conflict (Russia-Ukraine and US/Israel-Iran), there are some crucial differences.
- Analysts currently expect this gas price increase to be a reactionary short-term blip that should settle down - supplier reactions should therefore also be short-term.
- Gas prices are currently high but they’re nowhere near the levels seen during the energy crisis.
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What should you do?
If you’re on a fix that you’ve taken out recently, you don't have to do anything. You’re locked in and can enjoy price certainty for the duration of your contract. Your bills will fall in April when the government's £150 bill reduction measures come into force.
If you’re on a fix that’s coming to an end soon, there are still a limited number of deals available that offer savings against the April price cap of £1,641 that you should consider switching to. If you're not keen on switching, keep an eye on the market to see where prices are by the time you’re eligible to switch.
If you’re on a standard variable tariff, you should also consider fixing to one of the deals that offer savings against the April price cap.
You can also choose to stay put because the April price cap offers protection from these price spikes until at least July. If this wholesale price spike is sustained, the July price cap will almost certainly go up, so fixing for price certainty could be preferable. However, we can’t predict how the situation is going to unfold or how long it’s going to last for, so we don’t know how (or if) it will affect energy prices so far ahead.
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