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 - including oil refineries and tankers - in multiple countries. It has also closed the Strait of Hormuz, which is a key shipping route for oil and gas. While talks have taken place aimed at opening it up again, 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 to its highest levels 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 hasn't yet filtered through to the energy price cap, which affects the prices those who aren't on fixed deals pay for their energy, because the conflict began after the April price cap drop was already locked in.
However, it's likely to affect the next price cap, which is announced at the end of May and comes into effect on 1 July. It's currently predicted to increase by around 13.5%, but the assessment window hasn't concluded yet.
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.
It has also affected customers who use heating oil rather than signing up to gas and/or electricity tariffs. Heating oil isn't capped by a price cap, so customers aren't protected from oil price spikes. Oil prices have doubled since the start of the conflict, which has placed a significant financial strain on consumers due to buy more oil in the near future.
What should you do?
If you're on a fixed energy deal with more than 49 days left on your contract, you can switch if you want to, but you should probably stay put for now.
This is because you'll probably have to pay an exit fee to leave your contract early, and it's unlikely that you'll find a cheaper deal with prices currently high and likely to stay that way for the rest of the year. If you do decide you want to switch, make sure you factor your exit fees into your potential savings.
If you don't want to switch, you can manage your energy usage to save money instead.
If you're on a "standard variable" or "default" energy deal, you should strongly consider switching to a fixed deal.
Your rates are determined by the energy price cap, which is set at £1,641 per year for an average use household paying by Direct Debit.
Wholesale prices are likely to increase in July and stay high for the rest of the year, so you should fix to guarantee that your rates will stay at the same level for at least the next 12 months. Remember, though, that the actual amount you spend on energy will depend on the amount of energy you use).
If you're on a fixed energy deal with less than 49 days left on your contract, you can switch to a new fixed deal now - and you should strongly consider doing so, even if it's more expensive than the current deal that's due to end.
When your fixed deal ends, you'll roll on to a standard variable tariff, so your bills could go up by as much as 13.5% (at current estimates) from July and stay at that level or higher for the rest of the year.
You don't have to wait until the end of your contract to switch. If you're inside the final 49 days, you can switch without paying any exit fees.
If you use heating oil and are due to buy more in the near future, wait to see what happens with the government's financial support because you may be eligible for help.
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Is there any financial support available?
The government has committed to financially supporting affected households. Local authorities will distribute money to affected households via the Crisis and Resilience Fund from 1 April. England will receive £27 million, Northern Ireland will receive £17 million, Scotland will receive £4.6 million and Wales will receive £3.8 million. Details regarding exactly how the money will be allocated and which households will qualify are to be determined by local authorities, but households may have to apply rather than being automatically eligible.
There may also be more targeted support for the most vulnerable households later in the year when energy use usually increases in the autumn and winter.
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), they're not exactly the same.
Analysts currently expect this gas price increase to be a short-term blip that should settle down. While prices are high, they aren't currently forecast to reach the heights they did during the energy crisis. However, the longer the conflict goes on, the longer the effects are likely to last.
Additionally, Ed Miliband, the Energy Secretary, has warned that heating oil suppliers will have to ensure that oil continues to be fairly and transparently priced in response to reports of price gouging.