Fixing your energy at war prices means paying Iran's premium for 12 months — stay on the cap

The whole point of the Ofgem price cap is to protect households from suppliers profiteering during volatility. It is the regulator's bid against your supplier. Right now, with the Iran war scrambling wholesale prices, that bid matters more than usual.

Fixed tariffs work differently. A supplier offering a 12-month fix today is hedging their wholesale exposure for 12 months — in a market where the 12-month forward curve is elevated by an active war premium. They have to. They cannot price you cheaper than their hedge. So your fix embeds whatever the wholesale market thinks today about gas prices through May 2027.

That number is wrong. It will be too high if there is a ceasefire. It will be too low if the war escalates and Hormuz closes. Either way, the variable cap is updated quarterly to reflect what actually happened — your fix is updated never. You are not transferring risk to the supplier. You are paying them an upfront fee to absorb a 12-month forecast they themselves do not believe.

The April-June cap of £1,641 includes wholesale costs of £652 per typical household — about 40% of the bill. Network costs (£463), supplier business costs (£275), policy costs (£106), and VAT (£78) make up the rest. Those non-wholesale components are stable to falling — policy costs fell £130 between January and April.

Now look at what moves quarterly: only the wholesale slice. So when wholesale prices spike — as they have with Iran — that £652 line item rises and the cap rises with it. But when wholesale prices fall — as they did £38 between January and April — the cap drops too. A fix removes both the upside and the downside from your bill. You pay the same number whether wholesale gas is at war prices or peace prices.

The non-wholesale components — about £989 of your bill — are not war-sensitive. The wholesale £652 line is. So the right question is not "will prices fall?" It is "will the £652 line be lower in October than the supplier's 12-month assumption today?" The answer, in any scenario short of a regional war escalation, is yes.

The £1,850 forecast is for July-September only. It is one quarter of the cap year. The October-December cap will reflect wholesale prices through August. The January-March cap will reflect wholesale prices through November. By that point, either:

• The war has ended or stabilised, wholesale gas falls back, and the cap drops again — in which case your fix is paying the war premium for nine more months.
• The war has escalated meaningfully, in which case the government has indicated targeted support for the worst-affected households and Ofgem may apply additional cap mechanics.

The scenario in which fixing wins clearly is a narrow band: Iran war continues at exactly current intensity for 12 months, with no ceasefire and no escalation. That is a thin slice of the probability distribution. In every other scenario the variable cap tracks reality and the fix overpays.

Fixed-rate tariffs are the supplier's product, not the consumer's. Suppliers are pulling deals and shortening durations precisely because they want to limit their exposure to falling prices — that is the signal you should read. They are not pulling deals because prices are about to spike. They are pulling deals because they do not want to be locked into selling you energy at today's prices for 24 months when the war ends.

The fix-it case rests on annualising the £1,850 July forecast across most of your year. That is the wrong arithmetic. The actual blended cap path depends on what Ofgem announces in May, August, November, and again in February — four datapoints, of which only the May one will be known when most fixed-tariff decisions are made.

A simpler model: if July's cap is £1,850, October's is £1,750, January's is £1,700, and April 2027's is £1,650 (a plausible decline path if a ceasefire holds late summer), the blended 12-month cost on the variable cap from May 2026 is roughly £1,720. A £1,650 fix saves about £70 on that path — not £150.

If instead October's cap stays elevated at £1,850, January's is £1,800, and April 2027 is £1,750, the blend is around £1,810 and the fix saves £160. So the saving from fixing is anywhere from £70 to £160 depending on the path you assume — and £0 or negative if the BoE's central inflation forecast (back to 2% by 2027) is right.

The fix-it advocates pick the worst path and say it is the expected value. It is not. It is the upper bound.

Andrew Bailey explicitly said on 30 April that the Bank's central scenario still expects inflation to return to 2% in the medium term. The MPC held Bank Rate at 3.75% precisely because they think this energy spike is transitory rather than structural. Their adverse scenario — where the war escalates — sees inflation peak just above 6% and roll back over.

If the Bank is right (and central banks are usually right about energy as a transitory shock — see the Russia-Ukraine spike that mostly unwound by 2024), wholesale gas costs in the second half of 2027 will be back below current levels. A 12-month fix signed in May 2026 captures none of that improvement. The variable cap captures all of it.

This is a direct mirror of the cash-versus-gilts trade-off: you are choosing between locking in a return now (the fix) and accepting variable rates that will move with the underlying market (the cap). With cash and gilts, both have FSCS-style protections at scale. With energy, the cap is your protection — and it is fully underwritten by the regulator, not the supplier.

Three practical things to keep on a variable tariff:

1. Check your Direct Debit is right-sized. Suppliers love to over-collect during winter and hold your money interest-free until spring. Ofgem requires suppliers to refund overpayments on request. The MoneyHelper guidance on cutting energy bills walks through the request process. Check your statement quarterly; ask for refunds if the credit balance exceeds two months' bills.

2. Submit meter readings the day before each cap change. Cap changes apply from the date of the change, not your next bill. If you submit a reading on 30 June (cap drops day) you bank June usage at the lower rate. If you submit on 1 July (cap rises day, hypothetically) you bank June usage at the higher rate. Worth a few quid each quarter; £20-£40 a year cumulatively. The gov.uk smart meter guidance covers what your meter type can do — automated readings make this easier but still worth checking the dates.

3. Watch the wholesale signal, not the headline. UK wholesale gas (NBP) and Brent oil prices are public. If they sustainedly fall back to pre-war levels, the next cap will too — and you have already won by not fixing. If they sustainedly rise, you have a window to fix mid-cycle if you want. The variable cap gives you optionality the fix takes away.

For wider context on building financial resilience through this period — emergency funds, savings rates, and how much liquidity to hold — see our savings hub, the April cost-of-living check, and the comprehensive energy bills guide.

This article is for informational purposes only and does not constitute financial advice. You should seek independent financial advice before making any decisions about your energy supply. Energy choice involves real exposure: medical equipment users, those on means-tested benefits, and households with very high or very low usage all face different trade-offs that this general analysis does not cover. The case made here for staying on the cap is one reading; the case for fixing is in our companion piece and is genuine.