What does the situation in the Middle East mean for my energy bills?
What’s happening in the Middle East?
The US and Israel escalated tensions in the Middle East with strikes on Iran on 28 February. Iran has responded with counter-strikes on targets - including oil refineries and tankers - in multiple countries. It has also closed the Strait of Hormuz, which is a key shipping route for oil and gas. At this point, it’s unclear how long the situation will last.
This has led to a spike in oil prices and, because gas prices are linked to oil prices, a spike in wholesale gas prices. Gas has risen by 30% to the highest level in more than three years and, because gas plays a key role in electricity pricing, electricity is likely to increase in price as well.
What does this mean for energy bills?
This means that it currently costs energy suppliers a lot more to buy energy to supply customers with. As a result, they have either removed their existing deals from the market or repriced them so they’re more expensive than they were. This means that customers have fewer options when it comes to switching to deals with savings.
It has also affected customers who use heating oil rather than signing up to gas and/or electricity tariffs. Heating oil isn't capped by a price cap, so customers aren't protected from oil price spikes. Oil prices have doubled since the start of the conflict, which has placed a significant financial strain on consumers due to buy more oil in the near future.
However, the government has committed to financially supporting affected households. Local authorities will distribute money to affected households via the Crisis and Resilience Fund from 1 April. England will receive £27 million, Northern Ireland will receive £17 million, Scotland will receive £4.6 million and Wales will receive £3.8 million. Details regarding exactly how the money will be allocated and which households will qualify are to be determined by local authorities, but households may have to apply rather than being automatically eligible.
Additionally, Ed Miliband, the Energy Secretary, has warned that heating oil suppliers will have to ensure that oil continues to be fairly and transparently priced in response to reports of price gouging.
Is this the same as the energy crisis in 2021?
While both situations have been triggered by military conflict (Russia-Ukraine and US/Israel-Iran), there are some crucial differences.
- Analysts currently expect this gas price increase to be a reactionary short-term blip that should settle down - supplier reactions should therefore also be short-term.
- Gas prices are currently high but they’re nowhere near the levels seen during the energy crisis.
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What should you do?
If you’re on a fix that you’ve taken out recently, you don't have to do anything. You’re locked in and can enjoy price certainty for the duration of your contract. Your bills will fall in April when the government's £150 bill reduction measures come into force.
If you're on a fixed energy deal with less than 49 days left on your contract, you can switch to a new fixed deal now. When your fixed deal ends, you'll roll on to the standard variable tariff, following the price cap, so it’s possible your bills will go up from July. You don't have to wait until the end of your contract to switch - if you're inside the final 49 days, you can switch without paying any exit fees.
If you're on a "standard variable" or "default" energy deal, you should consider taking a reasonably priced fixed deal, if you find one you're happy with.
Your current rates are determined by the energy price cap, which is reviewed every three months, and will be £1,641 from April to June for an average use household paying by Direct Debit. Wholesale prices are particularly changeable at the moment and have increased, so you should fix to lock in lower prices when you can (remember, your actual savings will depend on the amount of energy you use).
If you use heating oil and are due to buy more in the near future, wait to see what happens with the government's financial support because you may be eligible for help.
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