How Iran’s Strait of Hormuz Threats Could Drive Business Utility Costs Higher
As global markets closely monitor escalating tensions in the Middle East, Iran’s recent parliamentary approval to potentially block the Strait of Hormuz has reignited fears in energy markets worldwide. While no action has yet been taken, the mere threat is already rippling through commodity markets, including natural gas and oil, impacting energy costs for businesses across Europe and beyond.
Why the Strait of Hormuz Matters
The Strait of Hormuz is one of the world’s most critical shipping chokepoints. Roughly one-fifth of global oil consumption and significant volumes of liquefied natural gas (LNG) flow through this narrow passage linking the Persian Gulf to global markets. Any disruption, or even the threat of disruption to this corridor creates uncertainty for energy supply, which can trigger volatile price spikes across energy commodities.
Iran, aware of this strategic leverage, appears to be using the threat of closure as a geopolitical bargaining chip rather than a likely military action. As one observer put it:
“Iran has far too much to lose, revenue, regional influence, and crucial trade ties with Asia to actually close the Strait. But the threat alone unsettles traders, lifting oil and gas prices globally.”
European Energy Preparedness: Mixed Signals
The natural gas storage map for Europe reveals a mixed readiness picture:
| Country | Gas Storage Filled (%) | Comments |
|---|---|---|
| Belgium | 77% | Well-prepared; storage nearing high capacity |
| Portugal | 73% | Comfortable reserves |
| Italy | 67% | Above-average preparedness |
| France | 62% | Moderate storage levels |
| Germany | 47% | Low for summer; could struggle if LNG imports spike in price |
| Netherlands | 44% | Potential supply risk |
| UK | 36% | Low storage; highly exposed to global LNG price surges |
Countries like Belgium, Portugal, and Italy have high storage levels, offering some insulation against LNG market shocks. In contrast, major industrial economies such as Germany, the UK, and the Netherlands have dangerously low storage for this time of year.
If Iran’s threats persist, or worse, escalate, these vulnerable nations may be forced to compete for higher-priced spot LNG cargoes. The UK, for example, relies heavily on LNG imports to compensate for minimal domestic storage, leaving it exposed to global price spikes.
How Business Energy Costs Could Be Impacted
- Wholesale Energy Price Increases
Uncertainty in the Strait of Hormuz raises the risk premium on all energy commodities, not just oil. With the LNG market already tight after global demand spikes in 2024–2025, traders could bid up gas prices, forcing suppliers to pass on costs to businesses. - Higher Fixed-Term Contract Offers
Energy suppliers may revise offers for fixed-term contracts upward, anticipating potential shortages or price instability. This affects companies negotiating long-term power or gas agreements. - Volatile Spot Market Prices
Manufacturers, large offices, and hospitality firms using variable-rate or spot contracts could face price volatility spikes, similar to the post-Ukraine invasion period. - Increased Forward Hedging Costs
Energy buyers looking to hedge future consumption may find forward contract premiums rising, squeezing budgets for 2025–2026. - Pressure on EU LNG Imports
Europe, especially Germany and the Netherlands, depends heavily on LNG from the Middle East, the US, and Africa. A tighter global LNG market could divert supply away from Europe or raise costs significantly, impacting industries from steel to data centres.
What Should UK and EU Businesses Do?
- Review energy contracts now—Secure favourable rates before potential market disruptions impact offers.
- Monitor gas storage trends—Low storage levels in your country indicate greater risk of price spikes.
- Consider demand reduction and flexibility services—Reduce exposure by shifting consumption away from peak periods.
- Stay informed on geopolitical risk—Iran’s statements alone can jolt markets; proactive energy strategy is key.
Final Thought: A Threat More Powerful Than Action
Iran may benefit more from threatening than acting. Actual closure of the Strait would trigger severe regional and global backlash, harming Iran’s own economy. But for energy traders, even the mere hint of closure means risk and risk drives prices up.
For European businesses, this means the cost of doing nothing could rise quietly but sharply in the coming months, even if the strait remains open.
