Energy Market Update: Middle East Conflict Risk Eases but Volatility Remains

Energy markets have been noticeably calmer over the past few days after the significant volatility seen earlier in the month.

While tensions in the Middle East continue to influence pricing, the market has begun to stabilise as traders assess the current extent of the conflict and incorporate those risks into forward energy pricing.

However, the situation remains highly sensitive to developments in the region and further escalation or de-escalation could still drive significant price movements.

What Has Happened in Energy Markets This Week?

Wholesale energy markets entered the week on a bullish footing following continued military activity in the Middle East.

Risk premiums remained elevated after reports that the United States had launched strikes near Iran’s Kharg Island, a major export hub responsible for around 90 percent of Iran’s crude oil exports.

Initial reports raised concerns that energy infrastructure had been targeted, which would have significantly disrupted oil supply.

However, it was later clarified that the strikes focused on military installations and intentionally avoided oil export infrastructure. This clarification helped ease market concerns and prevented further price spikes.

Why Market Volatility Has Cooled

Despite ongoing geopolitical tension, energy market volatility has cooled considerably in recent days.

One key reason is that the current level of conflict risk has now largely been priced into wholesale markets. Traders have adjusted expectations and forward curves to reflect the possibility of supply disruption.

As a result, short term price movements have been more modest compared to the sharp swings seen earlier in the conflict.

That said, markets remain extremely sensitive to developments in the region. Any escalation affecting major oil infrastructure or shipping routes could quickly push prices higher again.

Renewable Generation Is Helping Stabilise Prices

Another factor helping to moderate price increases has been strong renewable energy generation.

Higher renewable output has reduced reliance on fossil fuel generation in the power sector, limiting the extent of wholesale electricity price increases.

At the same time, weakness across the wider energy complex has also helped contain upward pressure on prices.

Carbon markets have remained surprisingly stable, with carbon allowances showing little day to day movement and even trading slightly lower in recent sessions. Lower carbon pricing can reduce the cost of fossil fuel generation, which can in turn influence wholesale electricity prices.

What This Means for UK Energy Buyers

For organisations reviewing their energy contracts, current wholesale curves remain relatively favourable.

In particular, businesses with contracts due to renew within the next 12 months may wish to review their options while pricing remains stable.

Based on current market conditions, contracts due between October 2026 and March 2027 are not currently showing significant price increases compared with earlier forecasts.

For organisations that prefer cost certainty, this may represent an opportunity to secure pricing and reduce exposure to potential geopolitical volatility.

Should Businesses Consider Fixing Energy Prices Now?

While every organisation’s situation is different, periods of relative market stability can provide an opportunity for businesses to review procurement strategies.

Energy markets remain sensitive to geopolitical developments, particularly in regions that influence global oil and gas supply.

Locking in contracts during stable periods can provide protection against future volatility, especially if tensions escalate or supply routes are disrupted.

Although energy markets have stabilised slightly in recent days, the underlying risks have not disappeared.

The current conflict in the Middle East has already introduced significant uncertainty into global energy markets and future developments could still drive price volatility.

For businesses and care providers monitoring energy costs, the key takeaway is that current wholesale pricing remains relatively favourable compared with earlier expectations.

I can help with reviewing contracts and procurement strategies during periods of market stability helping your company manage future energy cost risks.