The US-Israeli bombing campaign against Iran and the consequent closure of the Strait of Hormuz have sent global gas prices soaring, and no major industrial economy feels the hit quite like the UK. British steelmakers now face an electricity cost premium of almost £30 per megawatt hour over their French competitors, the widest gap since 2022's Russia-Ukraine energy crisis, according to UK Steel. The mechanism is structural, not incidental. The UK's wholesale electricity market is set so that gas-fired generation sets the marginal price for all power — including wind and solar that cost a fraction as much to produce. France's prices are anchored by nuclear; Germany's by coal. When Hormuz closes and gas spikes, British industry absorbs the full hit while continental rivals feel a muffled version. The stakes are concrete. About 75% of UK steel exports — worth roughly £3bn — go to the EU. Every pound per MWh of cost disadvantage is a direct competitive penalty in the market that matters most. The gap with France had narrowed to £18/MWh last year after Starmer's government removed some policy-imposed costs. That progress has now been reversed by a geopolitical event entirely outside UK control. UK Steel's director general Peter Brennan is calling for a direct price subsidy — a cap mechanism estimated at £51m per year, where the government pays the difference above a threshold and recoups when prices fall below it. It is a modest ask by industrial-policy standards, essentially a contract-for-difference applied to steel electricity costs rather than to renewable generators. The deeper problem is that the UK has no short-term fix for its gas dependency in power generation. More renewables would structurally lower prices, but deployment takes years. Nuclear capacity is a decade-plus proposition. In the interim, every geopolitical shock in the Middle East or elsewhere translates into an immediate competitive penalty for British manufacturing. The government points to measures already taken — a claimed 25% reduction in electricity bills for over 10,000 manufacturing businesses and roughly £1bn per year in savings for the most electricity-intensive firms. But these gains are being eaten alive by the external price surge, and the structural vulnerability remains untouched. Andy Burnham's reindustrialisation agenda and Starmer's industrial strategy both rest on a foundation of competitive energy costs. That foundation is built on sand as long as gas sets the marginal electricity price and the UK has no buffer against supply shocks. The £51m subsidy proposal is a sticking plaster. The question is whether the UK will build the structural insulation — renewables, storage, interconnectors, market reform — before the next crisis arrives.
