Mar26 Energy Market BriefMar26 Energy Market Brief: Markets React To Geopolitical Risk

February 2026 will be remembered as a month where geopolitical risk moved decisively to the forefront of wholesale energy pricing. While winter fundamentals remained an important backdrop, it was the escalation of tensions in the Middle East, including the attack on Iran, that defined market direction and injected a fresh layer of volatility into both gas and power contracts.

The month opened with markets already carrying a degree of weather-related firmness following a colder-than-average January. Residential and commercial demand remained seasonally strong, and European storage withdrawals continued at a steady pace. Although storage levels across Europe were not critically low, they were notably below the exceptionally comfortable levels seen in 2024 and early 2025. This left the market more sensitive to risk headlines and less cushioned against unexpected shocks.

The attack on Iran shifted sentiment quickly. Even in the absence of an immediate physical disruption to LNG flows, the perceived threat to key shipping routes, particularly through the Strait of Hormuz, was enough to embed a clear geopolitical premium into prompt and forward gas pricing. The UK, while not directly reliant on Middle Eastern pipeline gas, remains exposed to global LNG dynamics. Any risk to global supply chains tightens competition for cargoes and directly impacts NBP pricing.

NBP gas contracts responded with sharp intraday movements, particularly across the front month and Summer 26 positions. Traders repriced risk rapidly, reflecting the market’s awareness that geopolitical escalation can evolve quickly. Volatility levels were noticeably higher than those seen through much of Q4 2025, signalling a return to more reactive trading conditions.

Power markets tracked gas closely throughout February. The UK’s marginal pricing structure, heavily influenced by gas-fired generation, meant baseload power contracts strengthened in parallel with gas movements. While periods of stronger wind generation provided temporary easing in Day-Ahead pricing, renewable output was inconsistent and insufficient to offset the broader upward pressure from fuel costs. Clean Spark Spreads remained under pressure during periods of peak gas pricing, reinforcing the linkage between the two commodities.

Carbon pricing under the UK ETS remained comparatively stable and did not materially drive direction. Instead, power pricing was almost entirely dictated by gas fundamentals and geopolitical developments.

From a structural perspective, supply fundamentals outside of geopolitics were relatively stable. Norwegian flows into the UK were consistent, and there were no prolonged unplanned outages. However, the market’s behaviour demonstrated that stable flows alone are not enough to suppress pricing when geopolitical uncertainty rises. LNG remains the balancing mechanism for Europe, and therefore global risk events continue to carry disproportionate influence.

In directional terms, February showed a clear upward bias overall, with volatility skewed to the upside. Forward curves for Winter 26 firmed, reflecting the market’s attempt to price in the possibility of prolonged geopolitical instability. Summer 26 contracts also strengthened, indicating that the risk premium extended beyond immediate winter demand concerns.

Looking ahead, much depends on the trajectory of Middle East tensions. Any signs of de-escalation could see a partial unwinding of the embedded risk premium.