Despite heightened geopolitical tensions in the Middle East, the UK’s physical gas supply remains secure. Supply is structurally diversified, with Norway providing around half the UK’s gas imports and North Sea production covering about a third. Exposure to Middle Eastern liquefied natural gas (LNG) is negligible, with Qatar accounting for only about 1% of UK gas supply in 2025. As a result, current risks do not stem from physical supply constraints, but from price volatility in global gas markets.
Moreover, the current design of the UK’s electricity market reinforces this vulnerability. This is because the wholesale market uses marginal pricing, in which the final—and most expensive—generator required to meet demand sets the clearing price. In the UK, this marginal unit is almost always gas-fired, because of the system’s dependence on gas for balancing, flexibility, and rapid response. Consequently, even when low-marginal-cost renewables or nuclear provide the majority of generation, gas still anchors the wholesale power price most of the time.
This dependence on gas for marginal generation makes the UK far more sensitive to global gas price shocks compared with markets with different structural mixes such as France, where nuclear dominates, Germany, which has a more diversified set of sources, or Spain, where strong wind and solar output reduce reliance on gas.
Because suppliers cannot influence wholesale pricing, UK energy companies act as price takers, absorbing volatility that can rapidly erode margins, especially when exposure to regulatory price caps and fixed tariffs is not fully hedged. In periods of stress, this dynamic leads suppliers to withdraw fixed-price products entirely.
The Risk of Market Stress
Recent wholesale gas market movements have created immediate margin pressure for UK suppliers that are not fully hedged. UK gas prices nearly doubled, rising to peaks of 174 pence per therm (p/therm) on 19 March 2026, from an average of 83p/therm over the 12 months leading up to 27 February 2026. A consequence of the conflict in the Middle East, which disrupted LNG flows and raised the global risk premium. Suppliers with insufficient hedging must absorb these sharply elevated costs, while continuing to serve customers on Standard Variable Tariffs, regulated by the Ofgem price cap, and fixed-rate deals agreed before prices spiked. Because the price cap will not be reset until July 2026, and because its level is determined during the observation window ending in May 2026, suppliers must carry the higher wholesale input costs throughout spring 2026. This increases pressure on gross margins, collateral requirements for hedging, and short-term liquidity.
Market stress was visible almost immediately. According to USwitch data, the number of available fixed-rate tariffs fell to 17 from 38 within a few days, as suppliers attempted to limit exposure. Major suppliers such British Gas, OVO Energy, and Scottish Power went further, withdrawing all fixed-rate offers entirely as hedging costs surged and forward prices became increasingly unstable. These actions are consistent with stress indicators across the supplier landscape, reflecting pressure on both risk management and short-term funding capacity.
Consumers Braced for Higher Energy Bills
Past price pressures in the UK have already affected household finances. Ofgem data shows that the number of customer accounts in arrears, both with and without repayment arrangements, has risen sharply since the 2022—23 energy crisis. Combined debt and arrears in the retail energy sector reached nearly £4.5 billion in Q3 2025, up from £2 billion in 2022, signaling a significant deterioration in consumer solvency.
At the same time, newly launched fixed-rate tariffs rose rapidly by £147 to £296 within a week, as geopolitical turmoil pushed wholesale prices higher. If these pressures persist, Cornwall Insight forecasts the July 2026 price cap could climb to around £1,826-based on data as of March 11 2026,up from £1,641 for the April 2026 to June 2026 period, with potential for even higher outcomes if wholesale prices remain elevated until the observation window ends in May 2026. The anticipated price cap from July 2026 onward is still well below the uncapped price cap from the January 2023 to March 2023 period, of £4,059 and the £2,500 Energy Price Guarantee implemented by the government
However, increases in wholesale costs do not pass through one-to-one into the price cap. Over recent years, fixed system costs including network charges, environmental policy costs, and operational overheads have increased substantially, driven in part by the investment needed to support decarbonization and the long-term security of supply. These structural cost increases mean that even if wholesale markets calm, regulated tariffs will remain higher than before the 2022‒23 energy crisis.
Affordability challenges are likely to intensify, and higher bills increase the probability of customer arrears and write-offs, a negative credit consideration for suppliers generating already thin margins. Some relief may come from the fact that elevated prices may discourage switching and decrease churn, especially among the roughly 35% of UK households on fixed-rate deals. Suppliers operating with thin margins and intense competition remain highly exposed to bad-debt accumulation, compounded by the sector’s limited ability to reprice rapidly in response to volatility.
