British households are facing “inescapable” rises in energy bills if global oil prices remain elevated due to the ongoing conflict involving Iran, according to Chris O’Shea, chief executive of Centrica, the parent company of British Gas. The warning comes as geopolitical tensions in the Middle East significantly impact global energy markets, particularly through disruptions to the vital Strait of Hormuz waterway.
Speaking to the BBC’s Sunday with Laura Kuenssberg programme, Mr O’Shea highlighted the substantial effect of the effective closure of the Strait of Hormuz on oil supply, noting that its impact on gas, and consequently electricity bills, should be less severe. He estimated that while around 20% of the world’s oil typically transits through the Strait, only 3-4% of the global gas supply has been affected. “So, the impact on gas, and therefore on electricity bills, should be lower than the impact on oil,” Mr O’Shea stated. “So my gut feel is that you’ll see more of an impact of this in the petrol pumps than you will in bills.”
The Centrica boss pointed to recent forecasts from consultancy Cornwall Insight, which project an average increase of £332 in energy bills across England, Scotland, and Wales from July. This follows an anticipated reduction of £117 from April, attributed to the energy price cap mechanism. If the current market conditions persist, Mr O’Shea believes such increases are “inescapable”.
In response to mounting concerns over the cost of living, the Prime Minister is scheduled to convene an emergency meeting with senior ministers and the Bank of England governor to discuss mitigating measures. The government has already announced a £53 million package aimed at supporting homes grappling with sharp increases in heating oil prices. Housing Secretary Steve Reed reiterated the government’s focus on keeping bills down, stating, “We’re monitoring this, believe me, hour-by-hour.”
The debate around government intervention has intensified, with Lord Walker, the government’s cost-of-living tsar and chief executive of supermarket chain Iceland, suggesting a temporary cap on energy companies’ and petrol stations’ profits in the Sunday Times. “I have asked the government to consider a temporary profit cap… to stop producers and retailers exploiting the crisis to make windfall profits at the expense of consumers,” Lord Walker wrote. However, Mr Reed appeared to dismiss this proposal, indicating that a cap was not currently deemed necessary and that it was not government policy.
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Mr O’Shea questioned the practicalities of a profit cap, drawing attention to the existing Energy Profits Levy, also known as the windfall tax. Introduced following Russia’s full-scale invasion of Ukraine in 2022, this levy currently taxes the profits of companies extracting oil and gas in the North Sea at an effective rate of 78%. The measure was initially implemented by the Conservative government and has since been extended until 31 March 2030 under Labour. Mr O’Shea remarked, “If you’ve got a situation where the Exchequer takes four fifths of what you’re making, I’m not sure there’s much more room for manoeuvre.”
The Centrica chief also advocated for increased oil and gas exploration in the North Sea, alongside expanding gas and battery storage and boosting renewable energy generation, as strategies to alleviate potential price rises. “It’s not a silver bullet… nothing in and of itself will fix this but these activities will bring prices down,” he stated. Conversely, Energy Secretary Ed Miliband has consistently dismissed calls for new North Sea licences, arguing that gas prices are determined by international markets, irrespective of the source. He also expressed concerns that further exploration would contravene efforts to reduce the UK’s carbon footprint.
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