Back on the energy rollercoaster

Four years on from the last energy price shock, the UK is again confronting the political and economic consequences of global conflict. With oil and gas prices reaching near-record highs, the government is facing a test of their commitment to the clean power agenda and whether they can deliver energy security as well as decarbonisation. 

Labour entered the year with an aim of prioritising getting the cost of living down and hoping to see some signs of recovery for the economy, however the recent spike in oil and gas prices has put that in jeopardy due to the UK’s vulnerability to these external shocks. Wholesale gas prices have risen sharply following attacks on energy infrastructure and the effective closure of the Strait of Hormuz. For the UK, where gas still sets the marginal price for electricity most of the time, this geopolitical instability abroad feeds into household and business energy bills.  

Energy Secretary Ed Miliband has told Labour MPs he is actively exploring whether electricity prices can be decoupled from gas — a long-debated reform aimed at preventing volatile fossil fuel prices from dictating the cost of cheaper renewables. At the same time, the conflict has reignited calls from opposition politicians, parts of industry and sections of the press for increased North Sea drilling as a route to lower bills and greater energy security. 

The argument that expanding domestic oil and gas production would materially shield households from price shocks is increasing in prominence, with the Conservatives and Reform UK pushing the government to immediately approve the drilling of North Sea oil fields. However, UK gas is priced at global LNG rates regardless of whether it is produced in the North Sea or imported. Additional domestic supply may support jobs and resilience, but it does not insulate consumers from global price movements in a market shaped by marginal pricing and international trade.

Miliband’s openness to discussing market reform represents a notable shift. In theory, decoupling electricity from gas could prevent future geopolitical shocks from cascading so directly into household bills. Decoupling would require significant intervention in the wholesale market, legal and regulatory change, and difficult decisions about how costs and returns are shared between generators, suppliers and consumers. It is not a reform that can be delivered quickly, nor one that offers immediate protection in the middle of a crisis.

 Public concern remains anchored to the cost of living and the government’s earlier decision to move green levies off household bills reflected that reality. For now, Labour is signalling caution, Chancellor Rachel Reeves, said earlier this week that “the full economic impact of the war remains uncertain”, while announcing measures to prevent profiteering, saying that she “will not tolerate any company exploiting the crisis”. Further support from the government is likely to be targeted rather than universal, constrained by weak public finances and memories of the 2022 energy bailout. 

 The conflict has not fundamentally altered the logic of Labour’s clean power agenda, but it has exposed the political difficulty of delivering long‑term reform in the shadow of short‑term shocks. As ministers balance fiscal restraint with public expectation, the challenge for the government is no longer just to argue that clean power will deliver energy security, but to demonstrate that it can do so in a way voters can feel.