Ofgem confirmed on 26 August that the energy price cap will rise by 4% from 1 October, taking the typical dual-fuel household bill to £1,723 a year, up £60. On its own that would be a modest, almost routine adjustment. What makes it worth a closer look is where the pressure is coming from. This is not a story about British weather, British power stations, or British policy. It is a story about a stretch of water off the coast of Iran that most billpayers could not point to on a map.
A price cap set thousands of miles from home
Wholesale gas prices in late August hit their highest level since January 2023, and the reason traces back to 28 February this year, when the United States and Israel launched military strikes against Iran. What began as an air campaign has since drawn in the Strait of Hormuz, the narrow channel through which roughly a fifth of the world’s seaborne oil and a similar share of its LNG normally passes. Iran’s Revolutionary Guard has warned vessels away, boarded ships, and laid mines. Traffic through the strait has collapsed from more than a hundred vessels a day before the war to around five now, according to shipping data reported by Al Jazeera. QatarEnergy declared force majeure on its LNG exports in early March after strikes hit its Ras Laffan facility, pulling a significant slice of global gas supply off the market overnight. Gulf crude exports are down by close to half compared with last year.
Britain does not import much gas directly from the Gulf. It does not need to. Gas is priced on a global market, and when a chokepoint responsible for a fifth of world LNG flows effectively closes, prices rise everywhere that buys gas, including the UK, regardless of where the molecules in a British boiler actually came from. That is the mechanism behind this rise, and it is the same mechanism behind the 13% increase to £1,663 that took effect in July. This is now the second consecutive quarterly rise driven substantially by the same conflict, and Ofgem’s own guidance offers little comfort: with no resolution in the Gulf in sight, the regulator and most market analysts expect prices to hold at this level or climb further into 2027.
The bill behind the bill
There is a second, less visible cost building alongside the headline figure. Energy suppliers are currently sitting on roughly £5.5 billion of customer debt, a legacy of previous price shocks that has not been paid down, and Ofgem’s price cap already bakes in an allowance of around £50 per typical household simply to cover the cost of that debt across the industry. In other words, part of every bill now is not paying for gas or electricity at all. It is paying for gas and electricity that was used, and not yet paid for, in earlier and even worse years. That is a structural drag that will persist even if wholesale prices eventually ease, and it is worth understanding as distinct from the Hormuz-driven spike, because the two won’t unwind on the same timeline.
Why this hits businesses harder, and differently
For households, the price cap at least puts a ceiling on how quickly suppliers can pass costs through, and spreads the pain over a fixed quarterly cycle. Businesses have no such protection. Non-domestic customers sit entirely outside the price cap regime, which means wholesale volatility of the kind driven by the Strait of Hormuz crisis reaches commercial energy bills faster and with fewer guardrails than it reaches domestic ones.
It also compounds with a separate, longer-running trend. Non-commodity costs, the network charges, balancing costs and policy levies layered on top of the wholesale price, now make up somewhere between 60 and 64% of a typical UK business electricity bill. Transmission network charges alone rose from around £16 to £31 per megawatt-hour from April this year, an increase of more than 60% on that single line item. So a business renewing a contract this autumn is facing two things at once: a wholesale gas market inflated by a conflict on the other side of the world, and a domestic network cost base that has been climbing independently of it. Neither is likely to reverse quickly, and together they explain why many finance directors are seeing electricity costs rise even in businesses where consumption has stayed flat or fallen.
What this means for the months ahead
None of the underlying drivers look close to resolving. The Strait of Hormuz situation is a function of an active conflict, not a temporary market dislocation, and European gas storage is currently running below historical norms for early September, which removes some of the cushion that might otherwise have absorbed a shock like this one. For businesses with contracts up for renewal in the next two quarters, the practical takeaway is simple even if the cause isn’t: treat current pricing as the likely baseline for the next several months, not a spike to wait out, and lock in visibility on fixed costs sooner rather than later. Anyone reviewing demand profiles, capacity agreements or contract timing over the coming weeks should factor in both the wholesale picture and the non-commodity trend, since it’s the two together, not either one on its own, driving what’s showing up on bills this autumn.
It’s worth sitting with the wider lesson here. A shipping lane most of us will never see has, within months, worked its way into the annual accounts of businesses across the country. UK energy security has always depended partly on global stability. This autumn is a reminder of how directly, and how quickly, that dependency shows up on the bottom line.