The Week the Market Priced In War Risk
How four days of Strait of Hormuz escalation added double digits to UK gas and power The Energy Ledger — by Asher Kilbride
Four trading sessions. That’s all it took for UK day-ahead power to climb over 24% and for NBP day-ahead gas to add nearly 13%. If you needed a reminder that energy markets are pricing geopolitics as much as molecules right now, this past week dlivered it in full.
Power outpaced gas over the run, which tells you something about the fundamentals layered underneath the headline risk premium — more on that below.
The driver: Hormuz, tankers, and a tariff that came and went
The thread running through every single one of this week’s morning notes was the Strait of Hormuz. It started with US strikes on Iranian targets over the weekend of 11–12 July, which were met with Iranian attacks on Bahrain, Kuwait and Jordan. By Monday, markets were parsing genuinely mixed signals: Tehran declared the Strait closed, yet vessel-tracking showed at least one laden Qatari LNG carrier transiting with its AIS switched off — evidence that some physical flows were continuing even as the rhetoric hardened.
Tuesday brought a sharper escalation. Reports emerged of Iranian attacks on two UAE-flagged tankers, with casualties among the crew, followed by continued US strikes along the Iranian coastline. President Trump responded by floating a US-enforced blockade on Iranian ports and a proposed 20% transit fee on cargo moving through the Strait — a policy idea that, regardless of its practical implementation, immediately built a fresh risk premium into the front of the TTF curve. The logic was straightforward: a transit fee raises the delivered cost of Gulf LNG and oil, and it raises questions about future cargo availability, so the market moves first and asks about enforcement mechanisms later.
By Wednesday, the fee proposal was withdrawn just as quickly as it arrived, with Trump citing a preference for alternative trade arrangements with Gulf states. Prices eased on the news — briefly. But the underlying tension didn’t go anywhere, and by Thursday attention had broadened to include Red Sea shipping risk, with markets watching for any escalation in Houthi activity that could add a second chokepoint to the geopolitical calculus.
The net effect across four sessions: a market that repeatedly tried to fade the risk premium and repeatedly found a reason not to.
Underneath the headlines: fundamentals were leaning the same way
It would be too easy to say this was a purely geopolitical rally. The fundamentals gave the risk premium somewhere to land.
Storage is running behind schedule. EU gas storage sat at roughly 52% full through the week — about 10.5 percentage points below where it stood at this point last year. Net injection rates were consistently coming in below the pace required to reach the EU’s 90% target by 1 November, and day-on-day injection figures were themselves softening rather than accelerating. That’s a slow-burn structural support for the winter curve, independent of anything happening in the Gulf.
Weather turned unhelpful for renewables just as demand ticked up. UK wind generation was forecast to fall by around 36% to just 3.1 GW by mid-week, even as temperatures ran above seasonal norms across Northwest Europe. That combination — weaker wind, hotter weather — pushed gas-for-power demand higher and did real work in lifting the prompt, quite apart from the headline risk story.
Nuclear had a rough few days. Two unplanned outages hit Heysham 2-7 in quick succession through 15–16 July, on top of an unplanned reduction at Hartlepool-2, adding unexpected thinness to UK generation capacity right as demand firmed. Planned outages at Heysham 1 and Sizewell B were already baked into the curve, but the unplanned losses were a genuine surprise the market had to absorb in real time.
LNG kept arriving, but the mix is worth watching. North West Europe took steady cargoes from the US, Trinidad, Peru and Algeria through the week, alongside a scattering of Russian-origin volumes into Zeebrugge and Gate — a reminder that European LNG sourcing remains a genuinely global, and geopolitically sensitive, supply chain.
Power outperformed gas — why that matters
UK day-ahead power rose faster than gas over the four sessions, which usually signals something beyond a simple gas-pass-through. Nuclear unplanned outages and softer wind both point to a power-specific tightening layered on top of the gas-driven risk premium. Worth watching whether that gap persists once Heysham 2-7 returns to full capacity, expected around 20 July.
Carbon and currency: quieter, but not idle
EUA Dec-25 carbon added a modest 2.5% over the week, tracking broader energy sentiment without the same volatility as gas or power — a reminder that carbon remains sensitive to macro energy direction but rarely leads it. UK ETS carbon moved rather more sharply, up close to 7% over the same period, a gap between the UK and EU carbon markets worth keeping an eye on for anyone running cross-scheme hedges.
Sterling, meanwhile, weakened modestly against the dollar through the week — a dynamic that matters for anyone pricing dollar-denominated LNG or Brent-linked contracts into GBP exposure, since currency moves were compounding rather than offsetting the commodity price rise.
What to watch next
● Hormuz transit conditions. The transit fee proposal may be dead for now, but the underlying tension between Washington, Tehran and Gulf shipping isn’t resolved. Any further escalation — or genuine de-escalation — will move the front of the curve fast.
● UK storage refill pace. With injections running below the trajectory needed for a 1 November target, this is a slower-moving but arguably more durable story than the geopolitical headlines.
● Nuclear return-to-service dates. Heysham 2-7’s restoration timeline is worth tracking closely given its role in this week’s power outperformance.
● Red Sea shipping risk. A second chokepoint story would add a further layer of complexity to an already jumpy market.
None of this is trading advice — just an honest account of what moved the UK energy complex this week, and why. As ever, more to come.
— Asher Kilbride
The Energy Ledger tracks UK energy markets, policy and the people shaping the sector, for those who work in and around it. If this was useful, consider sharing it with a colleague.