As well as the very real human suffering in the Persian Gulf, the recent escalation of the current conflict has sent shockwaves through global energy markets, exposing how vulnerable countries, including the UK, are to fossil fuel volatility. The impact on household bills has been widely discussed but, as with previous crises like the invasion of Ukraine and the Covid-19 pandemic, wider destabilising ramifications will emerge across the whole economy.
This moment must be a catalyst for accelerating the move to a more resilient, renewables led power system. But we also need to change how we use energy. We need to use it more efficiently and use the clean power we generate to underpin a more resilient, electrified society.
Food system pressures are rising
Food inflation could climb further as fertiliser and energy markets tighten. Around a quarter of global fertiliser supplies pass through the Strait of Hormuz, a route now being blocked, and prices have already risen by 15-35 per cent as a result. Farmers are responding by cutting fertiliser use or delaying planting crops. Lack of precision application means that fertiliser is sometimes overused, so scaling back doesn’t have to result in lower yields, but there will be impacts and it adds to the uncertainty.
Horticulture is particularly exposed. High energy prices are hitting greenhouse growers just as the government aims to expand UK fruit and vegetable production. With the UK importing most of its fresh produce, even small disruptions abroad can leave supermarket shelves bare.
Creating a more resilient food system means taking actions like co-locating greenhouses with waste heat sources, like water treatment works or data centres. Accelerating the build out of renewables infrastructure would help too, as would making use of highly efficient industrial heat pumps. But the biggest resilience win would come from a small shift in our national diet, eating more plant-based foods and alternative proteins which require fewer imported inputs. As well as being healthier, this could raise UK food self-sufficiency from 47 per cent to 64 per cent by 2050.
Cleaner transport is economic self defence
Oil price volatility highlights a strategic truth: that cleaner transport means energy security. Electric vehicles (EVs) already cut vehicle running costs (up to £1,400 per year even before this crisis). Every EV on the road also reduces the UK’s oil dependence. Slowing down the transition now would be a costly mistake.
The UK should speed up EV uptake by cutting VAT on public charging and expanding funding to improve the national network of charge points. Boosting support for affordable public transport and cycling, such as reinstating the £2 bus fare cap, would also help to keep people healthier and moving. These measures would all cut fossil fuel demand, shield households from price shocks and strengthen the economy.
Gas is the weak point for energy intensive industries
The UK’s heavy industries have struggled with high energy costs for years, but the current situation has pushed this to another level. Companies’ financial reserves are depleted and worries about a recession stop them investing in upgrading and electrifying infrastructure.
Gas intensive sectors such as ceramics and chemicals are particularly exposed, and the government is offering only disjointed and complex schemes for cutting their electricity costs. While these savings, applicable only to subsets of the industry, are welcome, they won’t in themselves be enough to help businesses invest in switching away from fossil fuels to ensure long term stability.
To futureproof UK industries, the government needs a comprehensive plan to cut industrial electricity costs, speed up the solutions to grid connection challenges and support businesses with upfront finance and advice. Short term, targeted support for gas costs may also be needed.
Other economic pressures are spreading
Oil and gas driven inflation is spreading through the wider economy. Construction materials, transport and energy intensive industries face rising costs, feeding into consumer prices. This has put the Bank of England in a difficult position: if inflation persists, it may raise interest rates again, even as the economy slows. Higher rates could suppress investment and push the UK towards recession.
It’s past time for the Treasury and the Bank of England to break free from failing economic orthodoxy. We need innovative solutions like dual interest rates to unlock urgent investment in the green economy, which itself can have a deflationary effect.
Will we build back greener, or double down dirty?
As the crisis persists, recession risks grow. But with a credible plan, centred on clean energy, resilient food systems and low carbon industries, the government could win greater market confidence and gain temporary flexibility on its fiscal rules.
Times are very uncertain, but what is certain is that geopolitical shocks will continue and climate impacts will intensify them. The only sustainable path is to make the UK inherently more resilient, by reducing dependence on fossil fuels, increasing self-sufficiency in crucial sectors and being better prepared for a turbulent future. Whether this crisis becomes a turning point is ultimately a political choice.
Discover more from Inside track
Subscribe to get the latest posts sent to your email.