Q&A: Why does gas set the price of electricity – and is there an alternative?

A surge in gas prices has been triggered by the ongoing conflict involving the United States, Israel, and Iran, significantly impacting electricity prices. The Iran war has caused oil and gas prices to soar, with Brent crude oil prices increasing by approximately 8.5 percent in a single day, reaching about $92.69 a barrel, and nearly 30 percent for the week. This spike is primarily attributed to concerns surrounding the Strait of Hormuz, a critical shipping route through which about 20 percent of the world’s oil supply passes. The conflict has led to fears of supply disruptions, as Iran has threatened to block traffic in this strategic waterway, raising alarms among traders and energy markets (Reuters). Since the onset of U.S. and Israeli strikes on Iran, traffic through the Strait of Hormuz has been blocked for several days due to fears of Iranian attacks on shipping vessels. In response to the rising prices and the threat to shipping, U.S. President Donald Trump announced that the U.S. will provide political risk insurance for vessels navigating through the strait (France24). The ongoing chaos in the Middle East is disrupting important shipping routes for oil and other goods, further exacerbating the situation. The longer the conflict lasts, the greater the implications for the global energy system. Prolonged instability is expected to reshape trade flows, assessments of infrastructure risk, and long-term investment behavior (Project Syndicate). As the situation continues to evolve, oil prices are anticipated to remain on an upward trajectory, with little indication of easing concerns over the safety of the Strait of Hormuz. The interplay of these geopolitical tensions is likely to keep energy markets volatile in the near future (Euronews, France24).