British businesses are bracing for another energy cost shock as wholesale gas prices surged by around 5 per cent following a fresh escalation of tensions in the Middle East.
The benchmark Dutch front-month gas contract at the TTF hub jumped to €49 per megawatt hour, reaching its highest level since 11 June, after a declaration from the White House that the ceasefire with Iran was over.
The British front-month contract climbed 6 pence to 116.75p per therm, just hours after the US launched a new round of strikes and Tehran retaliated by hitting American bases in the Gulf, while several tankers were attacked in the strait of Hormuz on Tuesday.
The timing of the price hike is particularly unwelcome for UK firms, which had seen wholesale energy costs ease since mid-June and oil return to pre-war levels as shipping cautiously returned to the waterway.
About a fifth of the world's liquefied natural gas supplies typically pass through the strait of Hormuz, and any squeeze on Qatari cargoes pushes up the wholesale prices that feed through to the fixed and variable contracts UK businesses sign.
Analysts warn that the fragile reopening of the strait is under threat, with a Qatari LNG tanker at risk of exploding and a Saudi crude tanker damaged near the strait, prompting maritime authorities to raise the threat level for vessels transiting the waterway to severe.
The International Energy Agency has warned that if the strait is not fully reopened before October, global LNG supply could record its first annual decline since 2012, which could lead to higher prices and increased demand during the northern hemisphere winter.
The lesson of the past week is that the energy market can reprice violently on a single statement from the White House, and business owners are advised to exercise caution when weighing up energy contracts.
Those on variable or out-of-contract rates are the most exposed to further spikes, while anyone banking on a calm autumn to fix at lower prices may find the window has already closed.
Stress-testing cash flow against another winter of elevated gas prices is now a prudent planning exercise, rather than a pessimist's exercise, as UK firms face the prospect of another energy cost shock.
