Troubled Waters: From Hormuz to the Rhine, the Risks Driving Energy Prices This Summer

6th August 2026

European energy markets are under pressure on multiple fronts this week. The Iran-US standoff over the Strait of Hormuz continues to inject geopolitical risk into gas pricing. Extreme heat across the EU is straining power infrastructure, with the Rhine at its lowest level since 2018 and French nuclear output falling. EU gas storage sits at a five-year low for this point in the summer. For UK energy buyers, the message is clear: near-term risk is building, and the gap between near-term and longer-dated contract prices remains significant.

Strait of Hormuz: volatility in real time

Gas markets swung sharply last week on developments in the Iran-US conflict. Monday saw a 5–8% drop after a quiet weekend and the announcement of a small ceasefire, with both sides agreeing to return to the negotiating table. That momentum continued on Tuesday, with prices falling a further 2–3%.

Wednesday reversed the trend. Overnight Iranian strikes on US forces sent markets higher, compounded by reports that Iran had rejected a proposal to share control of Strait of Hormuz shipping traffic with Oman. Thursday brought more strikes but a softer market reaction. Friday closed the week with minor upside movement.

Over the weekend, reports emerged that Trump had called off further strikes as a deal to reopen the Strait is reportedly being “rapidly reached.” Gas markets are reacting positively this morning, with the Winter 26 gas contract trading at around 4.74 p/kWh, down from last week’s 19-week high of 5.25 p/kWh. That said, the Strait situation remains fluid, and any breakdown in negotiations could push prices back up overnight.

Rhine level puts pressure on European power

Away from the Middle East, a structural problem is building across European energy infrastructure. Water levels on the Rhine River have fallen to their lowest point since 2018. This matters because the Rhine is a critical shipping route for coal deliveries to southern Germany and Switzerland. When coal cannot reach German power stations, the country turns to gas-fired generation and pulls power through interconnectors, often drawing supply away from France.

The heat is creating problems on the French side too. Three nuclear reactors are currently offline, and seven more are at risk of shutting down because river temperatures are too high for safe cooling. Less nuclear output means more reliance on gas-fired generation, which in turn means less gas is being injected into EU storage facilities. EU gas storage levels are already at their lowest point for this time of year since 2021.

The consequence for UK businesses is significant. Higher EU gas demand competes directly with UK supply, and the storage shortfall heading into winter creates a risk premium that is already being priced into Winter 26 contracts and beyond.

El Niño and global LNG: longer-term pressure building

An El Niño weather pattern is expected to push temperatures even higher next year, which could extend the infrastructure strains described above well into 2027 and 2028.

Global LNG demand is also intensifying. Egypt is set to import 26% more LNG in 2026 than in 2025. Asian buyers continue to pay a premium above European prices, which diverts cargoes away from EU terminals. For UK buyers, this means the global competition for gas is tightening at precisely the moment European reserves are under strain.

The forward curve tells two very different stories

The gas forward curve tells a split story depending on contract start date. Near-term contracts carry a steep premium. Winter 26 gas is trading at 5 p/kWh, with Summer 27 and Winter 27 sitting around 3.2 p/kWh and 3.1 p/kWh respectively.

Further out, prices drop sharply. Winter 28 trades at 2.5 p/kWh, Summer 28 at 2.3 p/kWh, and Summer 29 at just 2 p/kWh. Th These lower prices reflect market expectations that new LNG export capacity will come online, tipping the supply-demand balance. But those lower prices are available now. As delivery periods approach, contracts typically become more expensive and more volatile as near-term risks get priced in.

Power markets show a similar pattern. Longer-dated power contracts remain in backwardation, priced well below the front of the curve. UK power demand is expected to grow significantly in the coming years, driven by data centre expansion and EV charging infrastructure. No new large-scale generation capacity, such as a nuclear fleet, is planned at the scale needed to match that demand growth. The implication is straightforward: today’s far-curve prices may not last long.

Traders’ View

Businesses with renewals due in 2026 or 2027 face a challenging pricing environment. The combination of geopolitical risk in the Strait of Hormuz, European infrastructure strain, low gas storage, and rising global LNG competition creates substantial upside price risk. With several of these factors peaking simultaneously, conditions are starting to resemble the lead-up to the 2022 energy crisis. Delaying renewal decisions carries material exposure if any of these factors escalate.

For businesses willing to look further ahead, the opportunity is more encouraging. Contracts starting in 2028 and beyond are currently available at close to pre-energy-crisis levels. Locking in longer-term positions now reduces exposure to the volatility that will inevitably build as those delivery windows get closer.

Our trading desk is monitoring these developments in real time. If you want to discuss your contract position or explore hedging options, reach out to us at [email protected].

FAQ

What happens if the Strait of Hormuz is closed, and how long could it stay closed?

A closure restricts one of the world’s most important energy shipping routes. Around 20 million barrels of oil per day normally pass through the Strait, alongside approximately 19% of global LNG trade. Qatar and the UAE depend heavily on this route for LNG exports, so disruption can remove substantial volumes from the international market and increase competition for alternative cargoes.

There is no fixed limit on how long disruption could last. It depends on shipping security, military activity and diplomatic negotiations. Alternative pipelines can redirect only a limited share of regional oil exports, while LNG has fewer practical options. The recent conflict has shown that an effective closure can continue for months, even when a small number of vessels are permitted to pass through controlled routes.

How do tensions in the Strait of Hormuz affect UK gas prices?

UK gas prices are closely connected to European and global LNG markets. If LNG exports through the Strait are delayed or unavailable, European buyers must compete more aggressively with Asia for cargoes produced elsewhere. This can raise wholesale gas prices at both the UK NBP and continental European hubs.

Higher gas prices can also affect electricity costs because gas-fired generation frequently helps balance the UK power system. Even reports of shipping attacks or failed negotiations can produce sharp price movements before physical supplies are disrupted. The immediate commercial risk is therefore greater volatility, particularly for contracts approaching delivery.

Why do low European gas storage levels pose a risk for UK businesses?

Storage provides Europe with a buffer against cold weather and unexpected supply disruption. When stocks are low during the summer refill period, more gas must be purchased and injected before winter. That additional demand can support prices and create a larger risk premium in winter contracts.

The UK has less seasonal storage than several European countries and remains closely connected to the wider regional market through pipelines, LNG flows and electricity interconnectors. Strong European demand can therefore compete with UK supply. For businesses approaching renewal, low storage increases the risk that colder weather or a fresh supply disruption triggers a rapid rise in prices.

Is the Rhine River low right now, and how is this affecting European energy markets?

Yes. At the start of August 2026, water levels at Kaub, a key shipping point in Germany, were near the historic low of 25 centimetres. This figure is a river gauge reading rather than the actual depth of the shipping channel. Even so, levels this low have forced barges to carry lighter loads, increasing freight costs and restricting deliveries to industrial sites and power stations.

Reduced coal transportation can increase Germany’s reliance on gas-fired power or imported electricity. Extreme heat is creating a separate but related problem by raising the temperature of rivers used to cool nuclear plants. Together, these pressures tighten regional electricity supply and can increase gas demand at a time when Europe is trying to refill storage.

How might reduced French nuclear output affect gas and electricity prices?

France’s nuclear fleet normally supplies large volumes of relatively stable electricity to its domestic market and neighbouring countries. When reactors reduce output, France may export less power or need greater support through imports and alternative generation.

Gas-fired power stations can help fill part of the shortfall. This increases gas consumption and may reduce the volumes available for storage injection. Lower nuclear availability can therefore place upward pressure on European electricity prices while also supporting gas prices. UK businesses can feel the effect through interconnected electricity markets and the broader European gas market. Several French reactors have already faced shutdowns or output restrictions because high river temperatures limit cooling operations.

Why are energy contracts starting in 2026 and 2027 more expensive and volatile?

Contracts closer to delivery are more exposed to current supply conditions. For 2026 and 2027, the market is pricing risks connected to the Strait of Hormuz, low European storage and weather-related infrastructure constraints.

This is reflected in the forward curve. Winter 26 gas is trading at around 5 p/kWh, compared with approximately 3.2 p/kWh for Summer 27 and 3.1 p/kWh for Winter 27. Nearer-term contracts can also move more sharply when geopolitical developments or weather forecasts change, as the market has less time to replace lost supply before delivery.

Should businesses fix or renew an energy contract starting in 2028 or beyond now?

There is no single answer for every business, but the current far curve presents a clear budgeting opportunity. Winter 28 gas was shown at approximately 2.5 p/kWh, Summer 28 at 2.3 p/kWh and Summer 29 at around 2 p/kWh. These levels are more than 50% below the near-term Winter 26 price in the same market snapshot.

Securing some or all of a longer-term requirement can reduce exposure to future volatility, particularly if infrastructure constraints and electricity demand continue to s. The appropriate approach depends on the organisation’s risk tolerance, consumption profile and procurement strategy. To explore how current far-curve pricing could support your long-term procurement strategy, speak to the NGP trading desk at [email protected].