Geopolitical pressures reshaping the UK energy market

Global events, local consequences

Since 2020, the global energy market has been in a state of almost continuous turbulence, shaped by a host of geopolitical disruptions. Events such as the Russian invasion of Ukraine, prolonged instability in the Middle East, the global pandemic, and a rise in economic protectionism have all combined to create a volatile and unpredictable landscape.

For UK businesses, particularly those with high energy consumption, these developments are not just global issues; they are direct influences on operational costs, procurement decisions, and long-term planning. The need to understand how global dynamics affect local energy prices and supply security has never been more important.

Broadly speaking, any events that impact the supply of gas or electricity, or the demand for gas and electricity, will make energy prices fluctuate. We’ll explore some examples in this article, starting with events that impact the supply of energy.

Supply-Side Impacts

Russia-Ukraine conflict

When Russia invaded Ukraine in early 2022, it triggered an energy crisis across Europe. As one of the continent’s major gas suppliers, Russia’s decision to weaponise energy exports in retaliation for Western sanctions sent shockwaves through global markets. By drastically reducing pipeline gas flows to Europe, it caused a scramble among European countries to secure alternative sources, most notably from the US and the Middle East

Even though the UK imports relatively little gas directly from Russia, it does have to keep an eye on the global wholesale prices. As demand surged for non-Russian LNG, the international prices soared, which inevitably increased the UK prices alongside them. The interconnected energy market meant that what happened in Eastern Europe was quickly felt in energy bills across British industry.

Interconnectors and infrastructure

The UK is connected to mainland Europe through several key gas interconnectors. While these links offer an additional supply, they also expose some vulnerabilities. When continental Europe faces its own supply issues, exporting countries will prioritise their domestic demand needs, restricting exports. Likewise, routine maintenance or technical faults mean pipelines are offline for extended periods of time and will temporarily reduce flows, creating instant price spikes in the UK.

These limitations have highlighted the need for advanced storage solutions and an upgraded energy grid system, sparking renewed calls about domestic capacity investments and diversification.

Weather-driven supply constraints

Although not a major issue just yet, the UK’s growing dependence on renewable energy – particularly wind and solar – means that weather has become an increasingly influential supply-side factor. When wind speeds drop or cloud cover is extensive, generation from wind turbines and solar farms falls significantly. Periods of “darkness” – where there’s no wind or sunlight – can lead to shortfalls in renewable output, increasing reliance on backup fossil fuels or imported generation. This variability places additional stress on grid operators and can drive up prices during any supply gaps, particularly during winter months when demand is at its peak.

Demand-side pressures

The pandemic’s lasting energy impact

The Covid-19 pandemic triggered one of the sharpest declines in global energy demand ever recorded. As lockdowns swept across the world in 2020, industrial activity slowed dramatically, travel came to a halt, and energy use plummeted. UK gas prices dropped around 60-40 per therm (p/th) to a low of 10 p/th, as suppliers worked to offload surplus gas in a saturated market.

When the first round of lockdowns ended, the rebound was just as volatile. As the world slowly came out of lockdown in late 2020, demand outpaced available supply, reigniting price inflation. The price swings that continued to take place throughout 2021 exposed some weaknesses in the fossil fuel supply chain and pushed governments and businesses to rethink energy strategies and how to reduce risk.

Long-term, the pandemic accelerated changes in how energy is consumed. Remote working reduced demand in offices, while online shopping created unprecedented spikes in logistics and warehousing energy needs. Many industrial players increased investment in renewable energy and energy-efficient technologies to better manage risk and reduce exposure to volatile fossil fuel markets.

Trade wars, tariffs, and industrial shutdown

Geopolitical tensions have also influenced demand via trade. Tariffs, sanctions, and economic decoupling have cooled manufacturing in several export-driven economies. For the UK, where exports account for approximately 15% of manufacturing output, this could mean a reduction in production and with it, reduced energy consumption in certain sectors.

While lower demand can help ease wholesale prices, the unpredictability and cyclical nature of trade disputes add complexity for businesses trying to plan future energy use and procurement. Additionally, uncertainties in global manufacturing performance affect border market indicators like the stock market, which can indirectly influence energy investor sentiment and price expectations.

Confidence in the market

Whilst some events have a direct impact on supply of and demand for energy, some events can have an impact on energy prices without directly affecting the supply or demand. Examples of these include:

Middle East unrest and price correlation

Oil and gas prices are closely linked – especially in LNG markets where gas contracts are often indexed to oil benchmarks. This means that instability in oil production can have a ripple effect for gas pricing, even when physical supply lines remain unaffected.

As conflicts in regions such as Yemen, Iran, and Israel and Gaza continue to flare, traders often price in risk factors in case of supply disruption, driving costs up pre-emptively. The speculation about volatility adds another level of uncertainty for UK businesses that rely on gas and oil to keep manufacturing.

Insurance, shipping routes and strategic vulnerabilities

Beyond the price of oil and gas, the cost of transporting energy has risen due to heightened security risks in key maritime corridors like the Strait of Hormuz. These higher insurance premiums and logistical challenges translate into higher landed costs for LNG. As global supply routes become more contested, businesses must prepare for more disruptions from different areas.

Implications for the UK energy market

Price volatility and affordability crisis

Post-2021, the UK experienced some of the highest energy prices in modern history. Wholesale gas prices surged dramatically creating a knock-on effect across the commercial and industrial landscape. Many firms saw energy bills increase by hundreds of percent in a matter of months, forcing emergency government interventions like the Energy Bill Relief Scheme.

While prices have since become more moderate, the structural causes of volatility remain. Businesses must now plan around the likelihood of future price shocks rather than treating them as anomalies.

Capacity constraints and infrastructure challenges 

The UK’s limited gas storage capacity has been a concern for a while. Unlike countries like Germany and the Netherlands, which maintain large reserves to smooth out supply fluctuations, the UK relies on imports to provide additional supply. This “just-in-time” model increases vulnerability to international crises, seasonal demand surges, or unexpected supply interruptions.

The growing share of renewable energy in the UK grid, while positive for carbon reduction goals, adds another challenge: intermittency. Balancing variable wind and solar output with stable supply sources (e.g., gas-fired generation or storage) is increasingly important, especially in periods of peak demand.

Shifting business procurement models

Uncertainty is reshaping business behaviour. Rigid fixed-term energy contracts are giving way to more flexible, risk-managed arrangements that allow companies to adjust their usage and pricing exposure more dynamically.

Forward-looking businesses are actively investing in on-site generation, long-term Power Purchase Agreements (PPAs) with renewable providers, and energy efficiency projects to gain more control over their costs and environmental impact.

Building strategic resilience in a volatile world

The UK energy market is undeniably shaped by global geopolitical currents. Whether through direct supply shocks, shifting demand patterns, or shaken investor confidence, businesses must prepare for a fundamentally more complex and dynamic energy future.

At Businesswise Solutions, we specialise in helping businesses navigate this uncertainty. From identifying the right energy procurement strategy to securing flexible contracts that adapt to market shifts, our experts work alongside you to ensure cost control, risk mitigation and long-term resilience.

In this landscape, resilience is not just about survival, it’s a competitive advantage.