The market is waiting for Iran's response.
In the long human story of energy and conflict, markets rarely wait for certainty before they react to fear. This week, British wholesale gas prices crossed 100 pence per therm — their highest in eight months — as Ukraine's incursion into Russia's Kursk region raised the specter of disrupted gas flows to Europe, while oil climbed past $80 a barrel on the anticipation of Iranian retaliation against Israel. The anxiety is not abstract: if these prices hold, ordinary households will feel the weight of distant wars in their heating bills and at the petrol pump.
- Ukraine's surprise push into Russia's Kursk region has placed a critical gas transit facility under military pressure, sending British wholesale gas prices to their highest point since December 2023.
- Simultaneous infrastructure outages — a planned closure in Aberdeenshire and an unplanned one on the Norfolk coast — have tightened British gas supply at the worst possible moment.
- Oil markets are pricing in an Iranian strike against Israel as a near-certainty, with the US deploying a guided missile submarine to the region and an Israeli airstrike on a Gaza shelter killing around 80 people, extinguishing ceasefire hopes.
- A brief recession scare had dragged oil prices down last week, but stronger US jobs data steadied markets — leaving traders caught between economic relief and geopolitical dread.
- Europe's deliberate reduction of Russian gas dependency over two years may cushion the blow, but analysts warn that if wholesale prices remain elevated, consumers will ultimately absorb the cost.
Energy markets are bracing for a shock. British wholesale gas prices climbed past 100 pence per therm on Monday — the highest in over eight months — as traders absorbed escalating conflict on two fronts: Ukraine's sudden incursion into Russia's Kursk region and the mounting risk of Iranian retaliation in the Middle East. If these prices hold, British households face steeper energy bills and drivers will pay more at the pump.
The immediate trigger for the gas spike was Ukraine's invasion of the Kursk region, with unverified footage circulating of soldiers at a gas measuring facility in Sudzha — a critical chokepoint for Russian gas flowing to Europe. The pressure is compounded by domestic supply disruptions: a planned five-week closure at the St Fergus Mobil terminal in Aberdeenshire and an unplanned outage at the Bacton Seal terminal on the Norfolk coast have already tightened the market.
Oil markets are responding to a separate fear. Brent crude jumped above $80 a barrel — its highest since late July — as Iran has yet to respond to Israel's killing of senior Hamas and Hezbollah commanders. The US has deployed a guided missile submarine to the region. An Israeli airstrike on a school-turned-shelter in Gaza City killed approximately 80 people, dimming ceasefire hopes and raising the prospect of wider conflict. Traders are not asking whether Iran will retaliate — only when.
One counterweight has emerged: better-than-expected US jobless claims data eased recession fears that had briefly dragged oil prices down, offering some market stability. Gazprom meanwhile confirmed it would continue sending roughly 39.6 million cubic metres of gas to Europe — a steady figure that masks a deeper shift. Europe has significantly reduced its Russian gas dependency over two years, and analysts at Rystad Energy suggest this may limit the escalation's impact on supply. But for now, markets are not betting on restraint, and the cost of that uncertainty will eventually reach consumers.
Energy markets are bracing for a shock. On Monday, British wholesale gas prices climbed past 100 pence per therm—the highest point in more than eight months—as traders absorbed the reality of escalating conflict on two fronts: Ukraine's sudden push into Russian territory and the mounting risk of Iranian retaliation in the Middle East. If these wholesale increases hold, British households could soon face steeper energy bills, and drivers will see higher petrol prices at the pump.
The immediate trigger for the gas spike was Ukraine's decision last week to launch an invasion of Russia's Kursk region. Ukrainian media has since circulated unverified footage showing soldiers controlling a gas measuring facility in the town of Sudzha—a critical chokepoint for Russian natural gas flowing to Europe through Ukrainian pipelines. The symbolic and strategic weight of that facility is not lost on energy traders. The last time British gas prices reached these levels was December 2023. But the pressure is not coming from Ukraine alone. A planned maintenance closure at the St Fergus Mobil terminal in Aberdeenshire will take that facility offline for more than five weeks. An unplanned outage at the Bacton Seal terminal on the Norfolk coast, a crucial hub for British gas supply, has already tightened the market. These supply disruptions, layered atop geopolitical risk, have pushed prices to levels that ripple through the entire energy system.
Oil markets are responding to a different set of fears. Brent crude, the global benchmark, jumped above $80 a barrel on Monday—the highest price since July 31. The driver here is the Middle East, where tensions have escalated sharply. Iran has not yet responded to Israel's killing of senior Hamas and Hezbollah commanders, but markets are pricing in the assumption that it will. The US has ordered a guided missile submarine deployed to the region. An Israeli airstrike on a school-turned-shelter in Gaza City killed approximately 80 people, according to Palestinian health officials, further dimming hopes for an imminent ceasefire and raising the prospect of wider regional conflict. Traders are not asking whether Iran will retaliate—they are asking when.
There is one counterweight to the anxiety. Last week, fears of a US recession sent markets into a sharp sell-off, dragging oil prices down. But new data showing a drop in jobless claims eased those recession fears by week's end, allowing oil prices to recover. Markets analyst Tony Sycamore from IG UK noted that the better-than-expected US employment figures have provided support for oil prices, even as anxiety about Iran's next move keeps traders on edge. Warren Patterson from ING was blunt: the market is waiting for Iran's response, and the timing remains uncertain.
Russia's state gas company Gazprom said it would continue sending roughly 39.6 million cubic metres of gas to Europe on Monday, a level consistent with the previous day. That steadiness masks a deeper shift. Europe has substantially reduced its dependence on Russian gas over the past two years, a deliberate move to insulate itself from supply shocks tied to the war in Ukraine. Analyst Christoph Halser at Rystad Energy suggested that even if the conflict escalates further, the impact on European energy supplies may be limited by that reduced reliance. But for now, the market is not betting on restraint. Wholesale prices are climbing, and if they remain elevated, the cost will eventually reach consumers—in their heating bills, their electricity rates, and the price of fuel at the petrol station.
Notable Quotes
Support on oil prices is coming from better-than-expected US data, which eased recession fears, but there is anxiety about when Iran might retaliate against Israel.— Tony Sycamore, markets analyst at IG UK
The market is still waiting for Iran's response.— Warren Patterson, Dutch financial institution ING
The Hearth Conversation Another angle on the story
Why did Ukraine's move into Kursk matter so much to energy traders? It's one region in a much larger war.
Because that gas facility in Sudzha is not just any piece of infrastructure. Russian gas flows to Europe through Ukrainian pipelines, and Ukraine controls the valves. If Ukraine can threaten or disrupt that flow, it changes the entire calculation of European supply security.
So the market is pricing in the risk that Ukraine might cut off Russian gas deliberately?
Or that the fighting could damage the facility itself. Either way, traders have to assume supply could tighten. When supply tightens, prices rise. It's mechanical.
And the Middle East piece—is that actually a supply threat, or is it just fear?
Right now it's mostly fear. Iran hasn't retaliated yet. But if it does, and if the US and Israel respond, you could see actual disruption to oil production in the region. Markets don't wait for that to happen. They price it in advance.
So we're paying for wars that haven't fully started yet.
We're paying for the possibility. That's how markets work. The moment traders believe supply could be disrupted, they bid prices up. By the time the disruption actually happens, the price is already high.
What about Europe's reduced dependence on Russian gas—does that actually protect consumers?
It limits the damage. If Europe were still as dependent as it was in 2021, a serious supply shock would be catastrophic. Now it's just painful. But pain still reaches the household.