Gas and Power Hit Highest Levels Since 2023 as Iran Sanctions Escalate

27th August 2026

UK wholesale gas and power prices climbed for another consecutive week, reaching their strongest levels since early 2023. Winter 26 gas closed Friday at 164.01p/th, up 8.4% on the week. Winter 26 power settled at £134.44/MWh, up 6.7% over the same period.

This rally was triggered by a rapid escalation in Middle East tensions, following the expiry of the US-Iran memorandum of understanding and amplified by tightening supply fundamentals across Europe. With the US now launching what it has called “Operation Economic Outcast,” a sweeping secondary sanctions campaign targeting any country or entity with close economic ties to Iran, the pressure on prices shows no sign of letting up.

Sanctions and supply fears drive volatile week

The week’s price action followed geopolitical developments almost hour by hour. On Thursday 14 August, the NBP September contract was already rising on MoU deadline risk. By Monday, with the memorandum expired, and low wind output lifting gas-for-power demand, prices pushed higher again. Tuesday saw the sharpest single-day move of the week at +2.9%, driven by Threats against the UAE alongside tightening Norwegian and LNG supply. A brief reprieve came on Wednesday as gas flows recovered and gas burn eased, but it lasted less than 24 hours. Thursday brought a +3.1% jump upon news of a UAE embargo and the Karsto processing plant outage. September gas closed the week at 162.58p/th on Friday, driven by a further US sanctions threat and a weak wind outlook.

The pattern across the forward curve is telling. Near-term contracts moved the most: September 26 gas was up 7.5% and Summer 27 gas up 9.9% on the week. Further out, Summer 29 gas rose just 1.8% and Summer 29 power only 0.6%. The market is pricing a near-term shock, not a permanent structural shift. But that distinction is cold comfort for businesses buying energy over the next 12 to 18 months.

The fundamentals underneath

Geopolitics triggered the rally, but it was the underlying supply picture that amplified it. Across North West Europe, gas storage injection rates fell 36% week-on-week, equivalent to roughly 60 mcm/d less gas entering storage. Norwegian maintenance, softer LNG arrivals and stronger demand all contributed to the tightening continental balance, which fed directly into UK gas pricing.

The UK’s own system fared slightly better. Langeled pipeline flows and UKCS supply recovered by around +14 mcm/d, which offset firmer domestic demand and higher gas-for-power burn. Although the UK system returned to broadly balanced territory, power prices remained tightly linked to the gas rally. Gas provided 51% of Monday’s electricity generation due to low wind output, and French nuclear constraints on interconnector flows meant the UK’s relative balance did little to shield it from the continental squeeze.

The forward outlook is split

Looking further ahead, two competing forces are pulling prices in different directions. On the downside, new LNG supply capacity continues to build, although meaningful price relief may not arrive until 2027. Weaker European industrial demand and growing renewable generation capacity are also working to ease the gas-to-power link over time.

On the upside, the risks are more immediate and escalating. The US has launched a formal campaign to isolate Iran economically, threatening severe sanctions against any country maintaining trade ties with Tehran. The UAE has already suspended trade with Iran in apparent anticipation, but China, which bought an estimated 80% of Iran’s shipped oil last year, has so far resisted US pressure to cut ties. Iran has threatened military retaliation against participating nations, and the US defence secretary has stated that kinetic strikes remain on the table. With the Strait of Hormuz still contested, shipping risk can reprice rapidly.

This shipping risk lands on a market with limited cushion. EU gas storage stands at approximately 62%, roughly 15 percentage points below the seasonal norm, leaving a thinner buffer heading into winter than markets are typically comfortable with. Prices may ease over the medium term, but the path between here and there will remain volatile.

Traders’ View

The current market puts energy buyers in a difficult position. Prices are elevated and fixing 100% of volume at current levels locks in the full risk premium. But staying fully open leaves budgets exposed to further upsides if sanctions escalate or the Hormuz situation deteriorates further. Front-month gas moved 3.1% in a single session last week. In this environment, a traditional fixed contract or a single fixing date is effectively a market bet.

The forward curve still falls sharply after Winter 26, which means there is room to benefit if supply improves and the geopolitical risk premium fades. A flexible purchasing approach lets businesses secure a core portion of their volume now against further spikes, without giving up the ability to act if prices ease. With prices moving as sharply as they have, pre-agreed triggers allow the desk to execute quickly when the right levels appear rather than chasing the market after the fact.

A wait-and-see approach is understandable in volatile markets. However, the past weeks have shown the cost of inaction. Resolution may take months, but the forward curve is repricing now. Procurement strategies should reflect that.

If you want to discuss your position or put a flexible strategy in place, contact our trading desk at [email protected].

FAQ:

What are sanctions?

In the context of international relations, sanctions are diplomatic and economic measures imposed by governments or multilateral institutions such as the United Nations or the European Union. Their purpose is to restrict a target country’s ability to trade, access global financial systems, or conduct business internationally, typically to pressure that government into changing specific policies or behaviours. In energy markets, sanctions can restrict the sale of oil and gas, block financial transactions related to energy trade, or penalise companies and countries that continue to do business with a sanctioned nation.

How can sanctions affect energy markets?

Energy markets are global. Oil and gas move across borders through pipelines, shipping routes and LNG terminals, and any restriction on that flow tightens the amount of supply available to buyers. When sanctions target a major producing nation like Iran, they can remove significant volumes from the market or force cargoes to take longer, more expensive routes. Even the threat of sanctions can move prices, because traders adjust their positions based on the likelihood of future supply disruption.

What sanctions are currently affecting oil and gas supply?

The US has outlined plans for a sweeping secondary sanctions campaign against Iran, targeting any country or entity that maintains economic ties with Tehran. This follows the expiry of the US-Iran memorandum of understanding and months of unresolved tension around the Strait of Hormuz, through which a significant share of global oil and LNG shipments pass. The UAE has already suspended trade with Iran, while China, Iran’s largest oil buyer, has so far resisted US pressure to cut ties. Iran has threatened retaliation, and the US defence secretary has stated that military options remain on the table.