Energy bills could still see a substantial rise in the summer despite the ceasefire deal between the United States and Iran, experts have warned.
The two countries agreed to the eleventh-hour proposal overnight, announcing a deal less than two hours before president Donald Trump’s deadline for Tehran to reopen the Strait of Hormuz.
The effective closure of the waterway over the past month triggered a massive spike in the price of oil and natural gas, hitting economies across the globe.
Following the announcement of the deal, oil fell to 14 per cent to $93.93 a barrel, while natural gas dropped 17 per cent to 111.26p per therm.
But the threatened spike in energy costs may still be present, UK households have been warned, despite the conditional re-opening of the Strait of Hormuz.
Dr Craig Lowrey, principal consultant at the respected Cornwall Insight, said: “A ceasefire can ease some of the immediate pressure on gas markets, and that could take the edge off price cap forecasts for July, but it does not wipe the slate clean.”
Energy regulator Ofgem sets its price cap using a three month ‘observation period’ which, for the July period, runs from 18 February to 18 May. This means that the rise in wholesale gas prices will be taken into account at least in part to decide the cap.
Dr Lowrey explains: “The announcement of a two‑week ceasefire has pushed gas prices lower, but they remain above pre‑conflict levels. If the Strait of Hormuz opens, and stays open, that would help ease prices further and would be reflected in the final July cap.
“However, this is not just about transport. Significant damage to gas infrastructure means supply constraints will continue. While Liquified Natural Gas (LNG) shipments are expected to resume, some of Qatar’s LNG capacity will take years to fully rebuild.
“That loss of capacity puts pressure on the global market and keeps it vulnerable to shocks. As a result, even with a ceasefire, wholesale gas prices are likely to stay elevated for some time, limiting how far the July price cap can fall.”
In February, Ofgem set the cap for April to June at £1,641, a reduction of £117 on average and broadly in line with Labour's pledge to cut energy bills by £150.
This means that bills are effectively protected until July. A forecast from Cornwall Insight last week, made before the ceasefire was announced, found this could rise by as much as £288 for the average household.
Simon Francis, End Fuel Poverty Coalition coordinator said: “Despite the Iranian ceasefire, the damage has been done for households. The surges in oil and gas costs have already hurt household finances and will continue to have an impact on energy bills for months to come.
“Oil, LPG and gas costs have spent over five weeks at elevated levels hitting some households immediately and all households will feel the costs from 1 July when the next Ofgem price cap period starts.
”For as long as our energy system is hooked on oil and gas prices, history will keep repeating itself and our bills will be at the mercy of decisions taken by Trump, Putin and Gulf States.”
A spokesperson for the Department for Energy Security and Net Zero said: "Tackling the affordability crisis is the government’s number one priority. That is why we are acting to bring bills down now and for the long term.
"Action we took at the Budget ensured the price cap has fallen £117 this April, which will remain in place until end of June. We have also expanded the £150 warm home discount to around six million households.”
An Ofgem spokesperson said: “The conflict in the Middle East is a fast-moving situation and we are monitoring and assessing the impact on the energy market.
“We know people are worried about the impact of the conflict on energy bills. It’s important to remember that customers on a fixed tariff and those protected by the price cap will not see any immediate impact on their bills, as the price cap is already set until the end of June.”
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