As the human tragedy of Russia’s invasion of Ukraine unfolds, so knock-on effects are felt across the energy complex, with all-time highs reached on gas and power, and multi-year highs on other commodities, such as coal and oil. The conflict has highlighted once again how Russian oil and gas are integral to Western Europe’s energy needs, and the robust economic response to the war, with sanctions and joint ventures cancelled by the likes of BP and Shell have inevitably led to price hikes. It is apparent that the risk built in to pricing to account for an invasion was not commensurate to the severity of actions we are seeing.

Prior to last Thursday’s events, prices had been relatively calm for the first time in several months – the series of named storms that battered the UK had generated plentiful electricity, dramatically reducing gas-fired generation for the month of February. As we enter meteorological Spring, so gas demand should ease too. It should also be noted that Russian gas flows have increased this month, but it is unlikely this will remain the case as events escalate.

The deregulated energy market in the UK has seen many shocks over the years, be it 911, the second Gulf War, Fukushima, the 2008 financial collapse or the first C-19 lockdown, for example. At present, the invasion seems the biggest shock of all, and the duration of the conflict will no doubt determine the cost impact in the short- and medium-term.

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