Energy bills to surge to nearly £2,000 a year due to Iran war

Leading experts have dramatically increased forecasts for Ofgem’s price cap change in July with £332 a year leap

Energy bills are expected to surge to nearly £2,000 a year by the summer because of the Iran war.

Leading industry experts Cornwall Insight has hiked its forecast for the increase in regulator Ofgem’s price cap by more than £330 after a surge in the wholesale cost of gas.

Most households are on the price cap, which limits the unit rate that suppliers can charge. It will fall by 7% to an average £1,641 a year from April 1 thanks to measures announced by Chancellor Rachel Reeves on her last Budget.

But any benefit of that will be wiped out by soaring wholesale energy costs which make up the biggest single chunk of bills and have leapt following the first missile strikes by the US and Israel on Iran at the end of March, and Tehran’s retaliation on oil and gas producing Gulf state neighbours.

Cornwall Insight has updated its prediction for Ofgem’s July price cap from £1,807 to £1,973. Of that, just over £954 would be electricity and £1,018 would be gas.

Dr Craig Lowrey, principal consultant at Cornwall Insight, said: “Due to the nature of the cap methodology used by Ofgem, even if wholesale prices quickly return to pre-conflict levels, some of this recent volatility will be baked into the July 2026 cap.

“The ultimate scale of any increase will depend on how long the disruption continues, and while the cap can shield consumers from short term fluctuations in the market, it cannot offset a sustained rise in wholesale market prices.”

Ofgem reviews its price cap every three months, taking into account changes to not just wholesale costs but policy measures and network charges.

While Cornwall Insight’s prediction of £1,973 applies for the year from July, Ofgem will change the level of cap again in October and then next January.

If the conflict is resolved then the cap could come down but, if it drags on, there is a real risk of the average price going above the £2,000 a year mark.

The government is facing calls to step in by pledging help for households if energy bills surge, as they did after Russia’s full-scale invasion of Ukraine.

However, doing so would come at a huge cost and energy suppliers and campaigners have urged ministers to consider targeted help for those most in need.

Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “This amounts to a Trump Tax on household energy bills as the conflict continues.

“At the same time, energy industry profits are likely to rise again as households are left exposed to another global oil and gas price shock.

Government should be preparing targeted help now for those most exposed, while speeding up the longer-term reforms that cut bills for good.

“No family should be left paying the price for global fossil fuel instability while energy firms cash in. That means immediate support for households facing the sharpest costs now, alongside faster action to reduce dependence on volatile gas markets for good.”

European wholesale gas prices have doubled since the Middle East conflict erupted and rocketed by 35% on Thursday after a fresh series of tit-for-tat attacks on energy facilities in the region.

Tehran struck neighbouring Qatar’s Ras Laffan plant – the world’s largest liquefied natural gas export hub – in retaliation for Israel’s attacks on its South Pars gas field.

US President Donald Trump responded by threatening to “massively blow up” Iran’s major gas field if the regime carried out further such attacks.

EDF, the UK’s biggest power producer, warned earlier this week that energy bills will be more than £300 higher for at least the next year.