UK Businesses Brace for Energy Shockwaves

 

 

UK Businesses Brace for Energy Shockwaves

 

Inflation, Unemployment, and Energy Costs: A Perfect Storm for the UK

 

The International Energy Agency’s plan to release the largest ever volume of oil from global strategic reserves comes as prices reach their highest levels in almost five years. For policy makers, the concern is that without addressing underlying supply constraints, the relief will be fleeting.

Iran has made clear that its military aims to drive oil towards two hundred dollars a barrel. Intelligence briefings attended by US senators suggest there is no coherent strategy yet to counter this ambition. In the Gulf, fears are mounting over the depletion of interceptor missiles. More Patriot missiles have been deployed in the past ten days than Ukraine has used in four years. Iranian forces, reportedly with seventy thousand Shahed drones ready to launch, operate with decentralised command, allowing local commanders autonomy to strike in alignment with broader objectives. The military has been preparing for this conflict for two decades and now that hostilities have begun, the trajectory is uncertain. Current forecasts suggest several potential outcomes.

The United States could attempt to provoke internal instability in Iran while targeting the leadership, aiming to instigate regime change. The hope is that sustained strikes, combined with precision attacks on key figures, could fragment the country and occupy it internally, reducing its capacity to act regionally.

Gulf states may press Washington to limit its involvement. The United Arab Emirates, reliant on trade, tourism, and business infrastructure, would be particularly vulnerable to a protracted conflict. Any disruption to Dubai’s economic ecosystem could compel Gulf nations to negotiate with Iran directly. One scenario could see a Gulf state request the removal of a US military base, which might prompt Iran to halt attacks against that country, a politically costly concession for Washington.

A US incursion onto Kharg Island, the hub for refining and ninety percent of Iran’s oil exports, could disrupt global markets. Although such an operation would not restore control over production to the United States, it would deprive Iran of revenue and disrupt supply to its largest client, China. Congressional approval and funding remain significant obstacles.

The most extreme option is the use of nuclear weapons. While currently not an openly discussed policy, historical precedent demonstrates the potential leverage of such a threat. For Iran, this underscores the incentive to advance its own nuclear programme.

None of these scenarios are imminent, meaning oil prices are likely to continue rising. For the UK economy, the implications are serious. Labour faces rising unemployment and sluggish growth, and surging energy costs could drive inflation higher.

In response, the government should consider immediate measures to shore up energy security. Issuing new licences for North Sea oil and gas fields, investing in longer-term gas storage at facilities such as Centrica’s Rough, and reviewing labour and tax policies to support employment may be necessary. Trade policy will also need urgent attention, with a pragmatic approach to engaging reliable partners, potentially including rejoining aspects of the EU customs framework.

For financial services, government-backed underwriting may be required to sustain business activity through the economic turbulence ahead.

These issues and more will be explored at our forthcoming Finance Forum breakfast event. Registration details are available here:

https://vacancysoft.com/events/finance-forum-march-2026/

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