UK Government Launches New Measures to Shield Businesses from Iran War Energy Price Shock

The UK government is expanding support for energy-intensive businesses affected by the Iran war, with Chancellor Rachel Reeves announcing the British Industrial Competitiveness Scheme will now cover 10,000 firms—up from 7,000—and deliver bill reductions of up to 25%, backdated to April 2026, as concerns mount over Strait of Hormuz disruptions and rising input costs.

The blockade of the Strait of Hormuz by the US Navy since April 13 has triggered a 14% spike in UK-bound crude freight rates, according to Clarksons Shipping Intelligence Network, directly pressuring margins for petrochemicals, steel, and ceramics manufacturers.

Energy-intensive industries, which account for roughly 18% of UK industrial output, are facing EBITDA compression of 300–500 basis points year-on-year, per S&P Global Commodity Insights, as natural gas prices remain volatile despite government interventions.

The situation has forced CFOs to reassess hedging strategies and supply chain resilience, with many turning to specialized advisors to navigate asymmetric risk exposure. The British Industrial Competitiveness Scheme “We’re seeing clients in the chemicals and glass sectors stress-test scenarios where Hormuz closure extends beyond Q3—this isn’t just about price spikes. it’s about contractual force majeure exposure and working capital strain.” Chancellor Reeves’ expansion of the British Industrial Competitiveness Scheme—now targeting 10,000 firms with up to 25% energy cost relief—aims to blunt this impact, though the measure won’t be operational until FY2027, creating a funding gap that businesses must bridge through internal liquidity or external financing. Britain plans to weaken the link between electricity costs and volatile gas prices, which has been blamed for holding back the economy. The EU strategy sets out 44 actions to limit ‘fossil-fuel price shocks’ in response to the Iran war. Rachel Reeves said the scheme would cut energy bills for more than 10,000 manufacturers. The scheme, which the government says will cut companies’ bills by up to 25%, will not come into operation until next year, although in a significant concession Reeves said support would then be backdated to this month. The government has said We see stepping up plans to offset potential food and fuel shortages caused by the Iran war. Sir Keir Starmer will chair another meeting of a Cabinet committee on Tuesday set up to deal with any shortfalls and a group of ministers is meeting twice a week to monitor stock levels and any disruptions to the supply chain. The closure of the Strait of Hormuz, a key shipping channel through which 20% of the world’s oil and liquid natural gas usually passes, has sent oil prices soaring since the conflict began. Earlier this month, government officials drew up a worst case scenario of food shortages, including chicken and pork, by the summer if the war continues. The government has also been seeking to calm the public, urging drivers to keep filling up with petrol and using cars as usual and not to change their travel plans amid fears over potential jet fuel shortages. Twice weekly meetings of the contingency planning group of ministers are being led by Darren Jones, Chief Secretary to the Prime Minister, who said: “What we have is not our war. The government made the right call to stay out of the conflict and only take defensive action to protect Britain’s interests.” “We’re acting now to prepare for, and mitigate where possible, the impact on our economy and domestic security as a result of the conflict.” Jones said that while the government will do everything in its power to find a permanent solution to the crisis and offset its impact, “what happens abroad will still affect us here at home.” Last week, the International Monetary Fund (IMF) predicted the energy shock from the Iran war would hit the UK the hardest of the world’s advanced economies, and cut its estimate for UK growth this year to 0.8% from its previous prediction of 1.3%.