Blame the War, Follow the Money
Inflation rose to 2.9 per cent this morning. The explanation on offer is a war in the Gulf. The evidence in company accounts says otherwise.
The Iran War Didn’t Set Your Gas Price. A Regulator Did.
Inflation rose to 2.9 per cent in the year to July, the Office for National Statistics confirmed this morning, up from 2.6 per cent in June and the first increase in the headline rate since March. Within the hour the explanation had already hardened into official language. Blame Iran. Blame the closure of shipping lanes through the Strait of Hormuz, a war nobody in Whitehall started and, we are assured, nobody in Whitehall can do very much about.
It is a comforting story, and comforting stories about the cost of living tend to share one feature. They never mention a boardroom.
The figures themselves rather undercut the alibi. Core inflation, which strips out energy, food, alcohol and tobacco, held steady at 2.6 per cent in July, exactly where it stood in June. Services inflation, generally the truest gauge of homegrown price pressure, actually eased, down from 3.6 to 3.4 per cent. The wider economy shows no sign of overheating; what moved the headline figure was narrower and far more specific, housing and household services, driven almost entirely by gas, up 14.7 per cent on the year, its steepest annual rise since October 2022, after Ofgem’s price cap rose by 13 per cent on the first of July.
The chancellor, John Healey, reached for the language ministers always reach for when a bill they did not set lands on a doorstep they did not build. The government had cut VAT on electricity and capped bus fares at £2, he said, to “give breathing space to those feeling the strain.” Working class households will find that breathing space comes to 86 pence a week, since the VAT cut does not touch gas, which is where the rise is coming from. James Smith of the Resolution Foundation was more candid about where the strain originates, noting that the new bout of inflation was “driven by events in the Middle East that are largely beyond the government’s control.” Both men are describing the same war. Neither is describing where the money from it goes.
Here is where it goes. Analysis published this month by the End Fuel Poverty Coalition found that UK profits posted so far in 2026 by a handful of energy firms, among them BP, Shell, Centrica, Equinor and Chevron, already exceed £6 billion, working out at more than £200 for every household in the country. Their combined global profits for the year now stand above £95 billion. Shell alone posted adjusted earnings of £7.3 billion for the second quarter, its best result in four years and more than double what it made over the same three months last year. Equinor, which supplies more of Britain’s gas than any other single company, booked £8.58 billion in adjusted operating income over the same period. Simon Francis, the coalition’s coordinator, put it plainly: firms are “price shock profiteers doing very well out of the Iran conflict.”
This publication reported the first instalment of that figure on 11 August, when UK operations alone had banked £3 billion in the opening three months of the war, or £102 for every household. A second quarter of results has since landed, and the running total has doubled.
The war did not decide that a British household should pay more for gas than it costs to extract it. A regulator did, by design.
None of this is an accident of markets left well alone. Britain prices every unit of electricity at the cost of the most expensive generator running at any given moment, which is almost always gas. A wind farm that cost the same to run in June as it did in January is paid the war price anyway, the instant a missile closes a shipping lane on the other side of the world. It is a policy choice, not a fact of nature, made by people who could unmake it, and it is the mechanism by which a war four thousand miles away becomes, with almost no friction at all, a very good quarter in Aberdeen and Stavanger.
Ofgem announces the next price cap on 26 August. The same coalition that totted up the £6 billion warns it is likely to rise again. Somewhere between now and that announcement sits the real answer to July’s inflation figures, and it is not a war in the Gulf. It is a market built to convert other people’s emergencies into somebody else’s income, running exactly as designed, while the chancellor calls it breathing space and the shareholders call it a very good quarter.
The war explains why the price of gas went up. It does not explain who was allowed to keep the difference.
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