Britain’s vulnerability to the Gulf exposed as energy crisis unfolds

After weaning itself off Russian fuel, the UK is exposed to global energy markets due to decisions by the energy secretary, Ed Miliband

The war in the Middle East will continue to harm the UK’s energy sector

It may be taking place thousands of miles away but Britain’s economy remains in the firing line, threatened by soaring bills and rampant inflation.

In a similar vein to the Ukraine conflict, Donald Trump’s unfolding war with Iran has exposed the vulnerabilities of the UK’s energy sector.

Not only does it highlight a continued reliance on precarious imports, but it also raises fresh questions over the UK’s lack of gas storage and Labour’s bizarre decision to ignore the vast resources we have in the North Sea Gas and Oil fields.

By day four of the unfolding conflict in the Gulf, UK gas prices had more than doubled to 147p per therm, and the cost of Brent crude had risen to $82, up from $71 last week.

The impact on household bills will not be immediate, although the costs will inevitably filter through over the coming weeks and months.

Why, though, have Iran’s retaliatory strikes on Qatar’s liquefied natural gas (LNG) facilities and its blockade of the Straits of Hormuz had such a big impact on Britain?

The answer lies in the globalisation of the world’s energy supplies.

Even though the UK receives hardly any of its LNG from Qatar, there is the inevitable knock-on impact from the country’s role in the global energy trade.

“The Straits of Hormuz are the jugular of the global LNG trade,” says Seb Kennedy, energy analyst and founding editor of Energy Flux, a gas trade newsletter.

He calculates that Qatar ships more than 80 million tonnes of LNG a year through the straits, about 25pc of global supply.

Around 80pc of that LNG heads east to Asian countries such as China, South Korea, Japan, India, Taiwan, Pakistan and Bangladesh.

Qatar’s LNG supplied just 0.8bcm of the UK’s gas in 2024, just over 1pc of our demand. By contrast, 7.5bmc were supplied from America, accounting for 11pc of overall gas consumption.

“The level of UK imports is not the right measure,” says Kennedy.

“The UK’s overall exposure to global LNG markets is the real vulnerability.”

He points out that Qatar’s decision to halt LNG production is spiking global energy prices.

“This is driving up the price of LNG and gas from all sources,

regardless of where it comes from,” he says.

His point is that LNG has turned gas trading from what was once a set

of regional markets based on pipelines, each with separate prices, into

a global system.

That evolution has also seen LNG become a global commodity, becoming increasingly important for countries that shunned Russian gas in the wake of Vladimir Putin’s invasion of Ukraine.

In practical terms, an energy shortage in Asia will see buyers paying LNG producers more to divert their tankers from Europe, creating a bidding war as rival countries compete to keep the lights on.

Consumers, the final buyers of that energy, will then inevitably lose out as they’re hit with higher bills in the future.

Meanwhile, the biggest winners from this conflict will be America’s LNG producers.

Last week, before US and Israeli missiles started raining down on Iran, the profit margin on a single cargo of US LNG delivered to Europe was $25m, according to calculations by Energy Flux.

This week, it’s doubled to more than $50m.

Britain’s vulnerability to those price surges are due to the decline of North Sea production, brought about by climate alarmist, Ed Miliband.

Gas from the North Sea boosts energy security by reducing reliance on imports, as well as supporting UK jobs and industry.

Yet this is then sold at global prices.

There’s no discount on North Sea gas for British consumers, but we do miss out on the profit.

What makes the UK vulnerable to gas price spikes is also that we need so much of it, around 75bn bcm a year.

That’s roughly the volume of 1.5 jumbo jets per person.

This can be a good thing, because gas is still among the cheapest, and most reliable, sources of energy.

A prolonged conflict in the Middle East could bring that all in to focus.

Why leave gas in the ground in our own territory?

Europe and the UK are competing with China for LNG supplies, says Olympe Mattei d’Ornano, analyst of Global LNG at BloombergNEF, driving up prices.

“If the Strait is closed for a long period of time, China could end up resuming LNG purchases from the US for the first time since February 2025,” she says.

“Beijing would likely revisit its existing contracts with the US, which would intensify competition for spot LNG, raising procurement costs for Europe.”

Such demand could even see Europe forced to rely once again on

Russian gas, warns Jan-Eric Fahnrich, analyst at Rystad Energy.

Globally, about 411 million tonnes of LNG were traded in 2024, according to the International Gas Union, of which about 90 million tonnes came from the USA and 80 million tonnes from Qatar.

Rystad estimates that just a four to five-week blockade of the Straits of Hormuz would remove about 12 million tonnes from global supplies.

Fahnrich says: “Should Qatar’s facilities sustain further damage, or should Iran dissuade commercial shipping through the Strait by means of force, much higher volumes could be removed from the global LNG balance in 2026.”

Russia has the potential to provide 18 million tonnes at relatively short notice to fill that gap, he adds.

As for whether Britain could have been better prepared for this latest bout of market chaos, most would say yes.

Chris O’Shea, the chief executive of British Gas owner Centrica, has long argued that the UK’s greatest vulnerability is its lack of gas storage capacity.

He points out that while countries like Germany and France have 80 to 100 days of gas storage, the UK typically has a week or so at best.

This storage is kept through Centrica’s Rough storage site, 18 miles off the coast of Yorkshire.

Even ministers appear to have recently acknowledged O’Shea’s warning.

The Government’s latest statutory security of energy supply report recently said: “In winter 2024/25, gas storage provided 8pc of total gas demand.

“Gas storage has provided a similar proportion of total gas demand

each winter for the last few years (ranging from 4pc to 7pc).”

That’s civil servant speak for saying that gas storage has kept the UK’s lights on and industry running every winter for the last few years.

However, given there is no possibility of rapidly expanding UK gas storage any time soon, the key question is when UK prices will be impacted by the conflict in the Middle East.

According to Capital Economics, every 5pc increase in the oil price adds about 0.1 percentage point to inflation in economies like the UK.

Under this rule of thumb, the jump above $80 a barrel this week would push UK inflation back above 3pc.

Meanwhile, analysis firm Cornwall Insight has warned that higher gas prices could force a mid-year increase in the energy price cap by nearly £200.

Rising business costs and household bills would stifle Britain’s weak economic growth even lower than the forecasts in Tuesday’s Spring Statement.

However, David Fyfe, the chief economist at Argus Media, says everything depends on the length of the conflict.

“If recent rises in spot oil and gas prices are restricted to a few weeks’ duration, the inflationary impact for the UK should prove to be minimal,” he says.

“Longer duration or more extreme price rises from where we are today would certainly feed through into retail motor fuel and domestic/commercial/industrial gas and power prices, albeit with a potential lag of 1-2 months.”

For Ed Miliband, the Energy Secretary, the long-term answer lies with unreliable renewables.

He has long argued that building a system based on “homegrown” green energy and nuclear power would allow Britain “break the stranglehold of the dictators and the petrostates” over the UK’s energy supply... but this is calamity-driven, idealogical fantasy.

With 27 million UK homes reliant on gas boilers, an electricity system reliant on gas-fired power stations and 30 million vehicles still running on petrol and diesel, the UK remains at the mercy of turbulence in the Middle East for many years to come, with no clear-headed political desire to rectify this.