The Gulf states have been crucial to the global economy ever since the first oil shock in 1974 broke the post-war monetary system and ushered in an era of high inflation. With the world's biggest concentrations of oil and gas in Saudi Arabia, Iran, Iraq, Kuwait and Qatar, and with producers locked into the Opec oil-exporters cartel, which could switch supplies on and off at will, the region held the world's energy supplies in its hands. That gave its rulers immense power and the wealth to buy up a vast range of assets. Interest rates, equity prices and inflation all over the globe were often determined by events in that one small region of the world. It mattered.

That looks to have changed. As the US and Israel attacked Iran, there were plenty of dire warnings that the oil price would go to $150 a barrel, or perhaps even $200. Flights would have to be cancelled as we ran short of jet fuel; petrol would have to be rationed. The closure of shipping lanes would send chemical and fertiliser prices soaring, triggering food shortages and factory closures. The global economy would be plunged into recession. Central banks started to consider an emergency response.

In the event, none of that happened. The price of oil did go up sharply, rising from $60 a barrel to close to $120 shortly after the conflict started. But rather than spiralling out of control, it steadied and then started to fall again, dropping below $80 as Iran and the US agreed a 60-day ceasefire at the start of this week. There is little sign of food shortages, or any basic commodities running low, and there are still plenty of cheap flights available. Most of the European economies are sluggish, but that is for a whole host of reasons. They have not collapsed and the US is still doing well, with strong growth, plenty of new jobs and the stock market hitting record highs. Inflation has ticked up a little, but should come back down again as the price of oil falls.

In reality, the Gulf states just do not matter as much as they used to. There are three big reasons for that. To start with, there is a lot more oil in the world than there used to be. Despite all the catastrophic warnings during the 1980s and 1990s that the world would have run out of the stuff by now, there seems to be more of it than ever. The US has turned itself into both the largest producer and net exporter of oil in the world, largely because of fracking. Despite all the fear-mongering, more countries, such as Argentina and Mexico, are developing their own shale oil and gas reserves. After the US strikes on the country, Venezuela will start to restore its oil fields and it has the largest reserves in the world. Far from running out, there will soon be too much oil. The Gulf can't hold the world to ransom when the global market is awash with oil.

Why the Gulf states' money is no longer so important

Second, alternative energy is rising in importance all the time. We can all debate whether the drive to achieve net-zero is too rapid, but there is no turning back the clock to the fossil-fuel era now. China's huge electric-vehicle industry is not going to disappear, and most open car markets will be electric within a decade or so. Renewables account for 45% of electricity generation across the EU and already for 25% in the US, the world's largest economy (and that share is rising fast, with solar last month overtaking coal as a source of power). Oil is a shrinking market.

Finally, Gulf states' money is no longer so important. Dubai and Qatar will take time to recover from the bombing campaign launched by Iran. A lot of money invested around the world will have to be brought home to pay for reconstruction and cover losses. The region's wealth funds won't be splashing billions on trophy assets as have done for the last 20 years. In a world where Wall Street is minting space- and AI trillionaires, there is a lot of spare capital around. The Gulf states won't matter so much. Add it all up and one point is clear. The main lesson from the Iran war is that the Gulf states' influence has evaporated. They are part of a small region, which no longer matters very much except to the people who live there. Investors will still have plenty of things to worry about – but the Gulf states and their oil resources can be dropped from the list.

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ESG investing – which focuses on environmental, social and governance (ESG) metrics – is the latest iteration of ethical or sustainable investing, whereby investors aim for returns without compromising their principles. ESG considers a company's impact on the environment and society and operational matters such as transparency over leadership decisions, executives' pay, diversity, and shareholders' rights, alongside typical financial metrics.

The rise and fall of ESG investing

ESG investing peaked between 2020 and 2022 with a surge of fund launches and record asset flows driven by huge subsidies for clean energy and ultra-low interest rates, which encouraged investment in alternative assets. Covid also fostered a re-evaluation of priorities and a growing emphasis on ethics and sustainability. Investments in global ESG funds topped $645 billion in 2021.

The bubble burst when central banks began hiking interest rates to squeeze out inflation after the pandemic. Higher borrowing costs made speculative clean-energy projects more expensive and risky, exacerbating the impact of the broader flight to safety.

It was feared that ESG investing could go the way of socially responsible investing (SRI), its precursor in the 1990s. That trend saw investors focus on growth stocks as they filtered out the likes of tobacco, alcohol and defence stocks, which tended to be value and income stocks. Then the growth bubble burst and SRI withered on the vine. “What I call ESG 1.0 is really a resurrection of that [SRI] movement,” Alec Cutler, manager of the Orbis Global Balanced fund, told Citywire in 2023.

The ESG boom was also interrupted by the energy crisis after Russia invaded Ukraine in 2022, which pushed many nations to prioritise energy security – a concern reinforced by the war in Iran – and by a political and regulatory backlash in the US that has spilt over into Europe. ESG has been dismissed as “woke capitalism”.

US president Donald Trump has announced further drilling to bolster fossil-fuel production in the US. He also withdrew the US from the UN Framework Convention on Climate Change and pulled the US out of the Paris Climate Agreement for the second time. At the COP30 climate-change conference in Brazil last year, many were disappointed by the lack of agreement on moving away from fossil fuels.

Recently, former prime minister Tony Blair urged the government to drop its commitment to net-zero and focus on North Sea oil and gas exploration to generate energy for AI. Trump has also pushed back against diversity, equity and inclusion initiatives, with large US companies such as Amazon, Disney, Google, and Meta following suit.

The challenges of ESG investing

Against this backdrop, many asset managers have scaled back commitments to ESG, while funds have dropped the term from their names amid large outflows. Larry Fink, CEO of the world's largest asset manager, BlackRock, perhaps sensing the change in the mood music around ESG, announced in 2023 that he would stop using the term, despite having previously advocated the investment strategy.

Another difficulty was that ESG, like SRI, had always struggled with ambiguity. The term is subjective, as ethics are personal. ESG strategies generally back companies developing renewable energy or prioritise capital-light firms with low carbon footprints. This could mean excluding tobacco, fossil fuels and defence companies to focus on firms tackling climate change.

However, as there is no universal, legal definition, ESG relies on differing interpretations of what it means to be ethical or sustainable. For instance, defence could be taboo for one investor or ESG-focused fund, but to another it could be deemed crucial to national security and social stability, and thus perfectly acceptable. Similarly, nuclear energy is considered costly and dangerous by some, as it produces radioactive waste. But to others, it is a vital source of low-carbon electricity and critical to the energy transition.

Furthermore, factors comprising ESG can change over time. For instance, governance was once the primary focus, but now environmental and social aspects, such as diversity, are more prominent. This subjectivity has led to differences in how rating agencies score a company's ESG characteristics and there can sometimes be conflicting scores and priorities.

This has triggered concerns about companies and funds “greenwashing” their environmental credentials: using marketing or advertising to make vague, misleading or false claims about their operational impact on the environment. In 2025, Environmental law charity ClientEarth filed a complaint against BlackRock, accusing the world's largest asset manager of calling its funds sustainable despite having invested over $1 billion in fossil-fuel companies, such as Shell and BP. BlackRock has since made changes to many of its funds.

According to a survey by Hargreaves Lansdown, 75% of its clients think it important that their investments reflect their values, with cybersecurity, anti-corruption, bribery and water security key issues. Meanwhile, 47% of women agreed that responsible investing, which includes ESG measures and companies that make a “positive, measurable impact”, is important, compared with 28% of men.

Other asset managers, such as Vanguard Investments Australia and UniSuper, have also been accused of mislabelling their funds.

Since 2022, markets have shifted towards AI or capital-intensive sectors, such as banks and oil. But ESG funds still manage $3.9 trillion in assets, says investment platform Morningstar.“While it may look like responsible investment is a busted flush,” says Darius McDermott, managing director at online research centre and fund ratings agency FundCalibre, “the reality is more nuanced. The atmosphere has changed, and... responsible strategies have had a difficult run of performance. But [the] urgent need to decarbonise our economy remains.”

Despite political scepticism over renewables in the US, the private sector is pressing ahead with investments, backing the energy transition. Several US Republican lawmakers still back the Biden-era Inflation Reduction Act, which provides $369 billion in spending and tax incentives to bolster clean energy and lower greenhouse-gas emissions. “Even if it is partially repealed, this won't necessarily affect the bottom line of all decarbonisation companies,” says McDermott.

Deregulation, such as changes to the US planning framework, could accelerate investment in renewable infrastructure, as occurred during Trump's first term. But McDermott's “biggest concern” is sticky inflation and interest rates that could stay high for longer than expected, potentially deterring the large capital investment needed to decarbonise economies.

ESG investing makes a comeback

Although the hype around ESG investing has subsided, “most mainstream fund managers integrate financially material environmental, social and governance risks and opportunities into their investment processes”, says Dominic Rowles, head of ESG at retail-investment platform Hargreaves Lansdown. Global sustainable funds enjoyed a modest recovery in the first quarter of this year, with $3.5 billion in net inflows thanks to a rebound in Europe, says Morningstar. The US, however, saw its 14th straight quarter of outflows at $4.3 billion. ESG investing is “not a fad, nor do the reasons for it delivering good long-term returns fade”, says Peter Michaelis, head of Liontrust's sustainable investment team. “The broad themes of improving resource efficiency, quality of life and resilience will persist, and companies delivering them will see strong growth.”

A source of future demand

There are also generational differences. According to a survey in April 2025 by Morgan Stanley, Millennials (those born between 1981 and 1996) and Generation Z (1997-2012) were more likely to be interested in sustainable investing than Generation X (1965-1980) and baby boomers (1946-1964). “As the largest living adult cohort, [Millennials'] preferences matter – and studies show that they are willing to change their buying habits based on their views of a company's sustainability credentials,” says Rowles.

Meanwhile, regulators are tackling greenwashing. The Financial Conduct Authority's (FCA) Sustainability Disclosure Requirements require claims relating to sustainability to be “fair, clear, and not misleading”. The EU has introduced the Corporate Sustainability Reporting Directive, which obliges 50,000 European companies to disclose information on a broad range of ESG issues, and the EU Circular Economy Action Plan to encourage capital toward green infrastructure.

FundCalibre's Darius McDermott says investors should not focus on labels when picking a sustainable fund, but consider holdings, exclusions, engagement policies, proxy voting records, and ESG metrics, as well as any third-party verification and the consistency of the fund's investment approach.

He points to the £623 million Janus Henderson UK Responsible Income Fund. “For investors seeking a sustainable yield, in both senses of the word, it remains an attractive option.” The fund avoids sectors it considers environmentally and socially harmful, such as alcohol, animal testing, weapons manufacturing, fossil fuels, nuclear power, gambling, and tobacco. Its top holdings include AstraZeneca, London Stock Exchange Group, HSBC, National Grid and Smith & Nephew.

“Most ESG themes are driven by long-term structural demand,” adds McDermott. The Regnan Sustainable Water and Waste Fund targets the need for improved water supply and waste management amid growing urbanisation and global wealth. The £240 million global fund consists largely of local operators that are less exposed to tariffs and geopolitical disruption than multinationals. Top holdings include Cia Saneamento Basico Do Estado de Sao Paolo, a Brazilian water and waste management company, and Watts Water Technologies, a US manufacturer of plumbing and heating products.

Liontrust's Peter Michaelis says that the challenge over the last few years has been that market leadership has been concentrated in the AI hyperscalers, defence, mining, and oil sectors, which Liontrust's Sustainable Future funds avoid completely, or are underweight in. “We have always favoured a multi-thematic approach focused on areas such as innovation in healthcare, renewable energy infrastructure, and cybersecurity.”

Although the heady days of ESG investing inflows are unlikely to return and political headwinds remain, the market is maturing. Demonstrating greater resilience than SRI, ESG remains a key tenet of the global investment landscape.

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You might expect the £219 million Guinness Sustainable Energy Fund to have performed poorly in recent years, given the dreadful performance of renewable-energy infrastructure funds. Far from it: the fund returned 18% in 2025 after losing 17% in the previous three years, but returning 150% in the three before that.

That is because its portfolio is much broader. While the renewable infrastructure funds invest in just a few energy-generation projects, the Guinness Sustainable Energy Fund is spread across quoted companies in the equipment, efficiency, electric vehicles, power generation, batteries and infrastructure sectors.

Last year's returns were due to improving policy clarity, lower interest rates and surging power demand, not just from data centres and digital infrastructure but also from transport, building, industry and the re-shoring to the US of manufacturing, says co-manager Jonathan Waghorn. “Global investment in clean energy in 2025 was $2.2 trillion, twice as much as in fossil fuels, reflecting the fact that renewable energy is the cheapest form of electricity in most situations,” he notes. “Growing power demand has taken over from decarbonisation as the central secular theme.”

Capitalise on the rising demand for electricity

The International Energy Agency forecasts that electricity demand will grow at 3.7% in 2026 – well above the 2015-2023 average of 2.6% – and at 4% per annum thereafter. AI and data centres currently account for 4%-5% of US power demand, but this will grow to around 12% by 2030. Electric vehicle (EV) sales are expected to increase by 4 million to 25 million in 2026 (when they will make up 29% of total sales). Battery prices fallen 93% since 2010, but are likely to drop significantly further by the 2030s. In China, which accounts for 60% of global sales, EV sales are already over half the total. In the US, they are just 10% (against 20%-25% in Europe) due to cheap gasoline and range anxiety in a country where driving distances are longer, but this is expected to increase to 45% by 2030. Policy support has been inconsistent but changes in Donald Trump's “One Big Beautiful Bill Act” last year were not as adverse as many feared.

China added 430GW of renewable capacity in 2025, more than the rest of the world put together, and hit its 2030 target six years early. Approvals for new coal-powered plants have slowed – Waghorn says that global coal-fired generation is at a peak and expects it to halve by 2050. He expects gas-fired generation to continue to grow until 2040, then decline slightly. Renewable energy's market share of energy demand will increase from 15% to 40% as electricity's share of total energy increases from 25% to 40% in 2045.

“Given the growth in electricity demand, it is no longer about renewables or fossil fuels, but about both,” says Waghorn. “Not only is renewable capacity cheaper but costs are falling and lead times for installation are shorter than for gas, whose costs are rising. Gas-fired generation will still have a very important role, providing base load capacity and smoothing out the intermittency of renewable energy. Nuclear power will be slower to expand as expertise needs to be built up.”

“There is significant scope for energy efficiency gains, enabling overall demand growth to slow from 2% to 1% per annum long term.” Growth in electricity demand requires a doubling in expenditure to $600 billion per annum by 2030 and a further increase to $800 billion by the 2040s. “Much of the Western world's power grid is 40-50 years old, and over half of US grid transformers are 30 years old. Estimates point to a doubling of the global power grid by 2040.”

All this adds to the investment opportunity, reflected in the breadth of the fund's portfolio. It makes the funds focused solely on renewable energy projects – with high sunk costs and facing falling wholesale prices – look stuck up a cul-de-sac. Despite this, the portfolio still trades on a 12% discount to the broader market – with higher earnings growth, estimated at 12.7% per annum in 2024-2027 and above that of global markets, there is surely plenty more upside to go for.

An energy fund for a world that still needs oil

The oil and gas sector was a popular contrarian tip for 2026, largely because it had performed so poorly for so long. With the Brent oil price stuck at $65 a barrel, the dollar weakening, demand weak and plenty of potential additional supply visible, the argument for the sector did not look compelling. Yet the Gulf war changed all that, with the oil price surging to over $100 a barrel. Oil and gas companies are back in favour, with the Guinness Global Energy Fund returning 41% in sterling in the first quarter. So is it too late to jump in?

Oil looks expensive relative to recent prices but it was a “cheap commodity and at a 100-year low relative to the gold price”, says co-manager Will Riley. “The world was paying just 2% of GDP for its oil compared with a 30-year average of 3%, and 5% in 2012.”

The International Energy Agency has reduced its estimate for growth in demand from 0.73 million barrels per day (bpd) in 2026 to an average fall of 80,000 bpd. In the longer-term, oil demand, which stood at 104 million bpd in 2025, was previously forecast to peak at 107 million bpd in the 2030s. That peak may be brought forward if higher prices now provide an incentive to shift from oil at the margin, but demand is expected to decline only slowly.

The closure of the Strait of Hormuz theoretically prevents 20 million bpd of oil and 10-11 billion cubic feet of gas per day reaching markets. Alternative pipelines can transport some of this oil, but only some. While high prices will stimulate new investment – both in new production and new transport infrastructure – that will take time. There is no simple alternative to replace Qatar's 20% of global liquefied natural gas (LNG) production, for example. On a longer time scale, there is potential for additional oil and gas supply around the world, which can partly offset the depletion of existing fields. This includes Venezuela, which has the world's largest oil reserves and whose heavy (and costly to extract) crude has a breakeven point of at $80 a barrel, estimates consultancy Wood Mackenzie. However, “under-investment, infrastructure decay, sanctions and loss of technical capacity will take years to rebuild even if political stability and foreign investment returns”, notes Riley.

The Guinness Global Energy Fund had returned a respectable 9% in sterling last year, before oil prices rose – comfortably ahead of the sector, though it had lagged badly over five and ten years. This explains why the fund had shrunk to £125 million, though it is now up to £240 million. Last year's performance was driven by the focus of companies on cash flow and returns on capital, says Riley. Integrated European majors, notably BP and Shell, have been good performers “as they tilted away from renewable energy to fossil fuels”. Canadian companies have also done well as the government U-turned towards fossil fuels.

At the start of the year, the Guinness Global Energy Fund portfolio was trading on a trailing price/earnings (p/e) ratio of 12.8, a 40% discount to global equities, with little prospect of growth in earnings and cash flow if prices remained flat. However, an $80-$90 Brent oil price will add 65% to earnings, says Riley. Even after recent share-price gains, that will bring the fund's p/e ratio back down to about 13 times, compared with a long-run average of 15. Rising earnings also enable firms to pay down debt while distributing higher dividends, making share buybacks and still funding more investment.

The crucial consequence of the Middle East crisis is that the world has been reminded of the risks of supply disruption. This is likely to result in significant investment in new production to reduce dependence on the Gulf, actively encouraged by governments. That is good news for oil and gas companies with the necessary capital and expertise. Professional investors, who neglected the sector for so long, will be looking for an opportunity to invest. So should retail investors.

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A global energy crisis is emerging, following a similar pattern to the Covid pandemic. Then, impending disaster could be seen approaching from a distance. In January 2020, the Chinese city of Wuhan was locked down. In early March, Italy followed suit. Two weeks later, Boris Johnson announced a nationwide lockdown in Britain.

Emerging Asia is already in the throes of an energy crisis. Sri Lanka and Bangladesh are rationing fuel. The Philippines has implemented a four-day work week for civil servants. Egypt has imposed a 9pm curfew for shops and restaurants. Could similar pain be heading for Britain?

For all the grumbling about more expensive petrol, daily life in Europe hasn't yet been much affected by the closure of the Strait of Hormuz, says The Economist. But the last tankers to leave the Persian Gulf before the war began have now reached their destinations. No more fuel is on the way. Strategic stockpiles are being drawn down. Even if Hormuz reopened today, a cumulative loss of about 5% of annual global oil output now looks baked in, a figure that could double if the strait remains closed. The last time oil demand fell by 10% was during the Covid-19 lockdowns of 2020.

How are markets reacting to the energy crisis?

Brent crude oil hit $115 a barrel on Wednesday, its highest level since the summer of 2022 and a 90% rise since the start of the year. While oil futures have risen, markets remain “strangely sanguine” given the huge scale of supply destruction, says Liam Denning on Bloomberg. Oil prices for 2027 delivery are up a modest 17% since the war began.

It could take years to undo the damage that has already been done to global inventories. And with “two blockades” in place and little progress on peace talks, it is still far from clear when the strait will reopen. A survey from the Federal Reserve Bank of Dallas reports that four-fifths of US oil executives now don't expect traffic in the strait to return to normal levels before August, with 40% thinking it won't happen until November or later.

Stock traders optimistically expect everything to be resolved soon, but energy experts and commodity traders are far more alarmed, says Robert Armstrong in the Financial Times. “Horror stories” about the prices paid to deliver diesel to Asia are rife. Those prices are sucking scarce global barrels away from European ports.

Uncertainty levels are through the roof – even the geopolitical “pointyheads” don't have a clue what the outcome will be from US-Iran negotiations. Energy traders, who usually profit from volatility, hate the uncertainty created by Donald Trump's Truth Social posts, which are impossible to predict and cause markets to swing wildly.

There is a growing “disconnect” between “buoyant” stock prices and a real economy suffering energy shocks, says an article by Edmond de Rothschild Asset Management. On a relative basis, the US and China look better placed to face the coming energy crisis than Europe or Japan. “Behind the facade of market rebounds, the “economic fundamentals” are slowly “deteriorating”. Investors “need to stay invested but without being led astray by illusions”.

How the energy crisis is affecting the Persian Gulf region

World markets have “lost their fairy godmother”, says Ambrose Evans-Pritchard in The Telegraph. The Gulf states boast vast sovereign-wealth funds – valued at $5 trillion – representing years of accumulated oil profits. Most of those funds have been invested in Western assets, keeping government borrowing costs low and “turbo-charging excesses in US private credit”. Yet with problems to solve closer to home, the region's monarchies are about to tap those rainy-day funds.

Signs of stress are apparent. The wealthy Emiratis have reportedly raised the topic of securing an “emergency dollar swap line” from US Treasury secretary Scott Bessent, to the “consternation” of those who believe in “America First”. Swap lines are a “backbone of the global dollar system”, says the Financial Times. They see central banks or finance ministries swapping currencies at times of financial stress, when demand for US dollars often surges. Swaps prevent financial panic from spreading and are reversed once the crisis passes.

Gulf states boast large foreign reserves and are unlikely to face liquidity stress. But swaps might help “avoid financial market disruption”, says Stephen Paduano of Oxford University. Gulf sovereign-wealth funds have ample stock and bond holdings, but selling those to raise quick cash “could cause a stock market rout” and stress the US Treasury market.

“Emirati officials haven't made a formal request for a swap line,” says The Wall Street Journal. Discussions are only “preliminary”. The idea may not be so much a request as an “implicit threat” to the global role of the US dollar. The US Treasury has been warned that if the Gulf runs short of dollars “it may be forced to use Chinese yuan” for oil sales instead.

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Charles Jillings, co-fund manager of Utilico Emerging Markets Trust, discusses the outlook for emerging markets and the long-term investment opportunities in infrastructure and utilities.

In this episode of MoneyWeek Talks, Andrew Van Sickle speaks to Charles about how emerging economies are dealing with Donald Trump's tariffs, the after-effects of the war in Iran, and why countries like Brazil and the Philippines are overlooked markets.

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MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

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What’s happening with UK energy prices?

Energy secretary Ed Miliband is set to approve the first major North Sea oil and gas project in almost ten years, says The Times. The licence to exploit the Jackdaw gas field, 150 miles east of Aberdeen, was granted under the previous Conservative government, but has been held up by legal wrangling.

Giving it the green light would not technically contravene Labour's ban on “new” drilling in the North Sea, but it would be a striking policy shift for Labour, and in particular for Miliband, a net-zero true believer.

Proponents say the energy shock caused by the Iran war has strengthened the case for drilling. Adura, the joint venture that owns the rights to the field, claims it could produce the equivalent of 6% of the UK's future gas supply.

Is that realistic?

Others are sceptical. Uplift, a lobby group, claims Jackdaw would have zero impact on our bills and do little to increase gas supply. Indeed, even if the UK extracted every last hydrocarbon from the North Sea, it “would not raise this country's long-term output of oil and gas by more than homeopathic amounts” and “would not move the needle on UK energy prices”, says Ambrose Evans-Pritchard in The Telegraph.

Oil is priced off the global market and the gas price would continue to track the international cost of liquefied natural gas – “unless we cut off our European inter-connectors, tore up our EU trade deal and retreated into energy autarky”.

Why are UK energy prices so high?

There are several reasons why UK energy prices are so high (we pay more for electricity than almost anywhere else in Europe). One is that, although the UK is getting good at producing renewable energy, it's terrible at scaling up its storage capacity. Despite improvements in battery technology, the UK's current capacity is negligible compared with the volume needed to affect electricity prices.

Another is geography and climate: while the price of solar power continues to plummet, wind power prices have plateaued, and the network costs of getting the power from the windy places (mostly northern and offshore) to the more populous ones are large. Green levies and other so-called “policy costs” make things worse, accounting for up to 11% of a typical bill for a dual-fuel household and 16% if it's electricity-only.

Another crucial factor is that we're a net importer of natural gas and highly vulnerable to external shocks. Moreover, our electricity prices are priced largely off the gas price, even though renewables now make up more than half the mix in terms of generating electricity.

Why is UK electricity priced off gas?

Because the UK – like almost all other developed, liberalised, economies – uses a “pay as clear” system of “marginal pricing” to match buyers with sellers so the market clears and overall demand is met by sufficient supply. In practice, that means that all power plants available to generate and sell electricity are continuously making “bids” to do so at a particular price. The bids are then arranged in a “merit order stack”, from the cheapest to the most expensive.

Because gas still makes up a big chunk of the mix, it is almost always the provider of the “marginal” unit of energy – the point at which the market clears and supply meets demand. One study found that in 2021, gas set the price of power 97% of the time, even though it generated only 37% of electricity. In France, where the market is dominated by nuclear, gas sets the price just 7% of the time.

Why not change the energy system?

We could, and there are various options. One is to move to a “pay as bid” model, where each power plant is paid the amount that it has bid to supply electricity, rather than the higher marginal price. But the risk there, says Simon Evans for Carbon Brief, is that all bidders (including cheap renewables) would seek to maximise their profit by bidding at the price they expect the market to clear, not at their own generation costs. As such, the system wouldn't lead to lower prices.

A second option would be to create two separate markets: a “green power pool” for renewables and another for conventional sources. This option was considered – and rejected as undeliverable – in the government's 2024 “review of electricity market arrangements”.

What other options are there for lowering UK energy prices?

A third, more radical, option for lowering UK energy prices would be to take gas out of the market completely. The sector would be managed as a strategic national reserve, receiving a regulated return for remaining open and available as a stand-by resource, while the rest of the market continues to use marginal pricing. It's doable, but would be politically very contentious.

The reality is that marginal pricing appears to be the “worst approach to clearing markets apart from all the others”, says Jon Ferris of consultancy LCP Delta. For the UK, where gas still sets the price, that leaves us stranded for now in a very expensive halfway house – bearing the capital costs of building a low-carbon system, while still paying the current fuel costs of the obsolescent fossil-fuel system.

What’s the solution to high UK energy prices?

In the absence of a new pricing mechanism for UK energy, some more pragmatism and less ideology would be a start, says The Economist. More than four-fifths of British homes still rely on gas for heating, far more than in the EU. So at some point, the commitment to hitting 95% clean electricity – renewables and nuclear – by 2030 is going to come unstuck.

In the long run, this is a sensible economic and geostrategic aim: the National Energy System Operator, which designs Britain's grid, projects that the country's energy-related costs (comprising transport, heating and electricity) could fall from 10% of GDP in 2025 to less than 6% by 2050 in a low-carbon world. We'd be much less vulnerable to external shocks. Yet even in 2050, the UK will still need gas as back-up. The government needs to recognise that and allow more North Sea exploration and drilling now. Even though it wouldn't bring down domestic prices, it would increase UK energy security and lend a fiscal hand, too.

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A few years back, Aliko Dangote, Africa's richest man and an ardent Arsenal FC fan, reluctantly abandoned his dream of buying the London club – saying he had no “excess liquidity” because he was channelling everything he had into his biggest project yet: the continent's largest oil refinery.

That act of self-discipline is now richly rewarding Dangote, says The Economist. Since the start of the war with Iran, his phone hasn't stopped ringing with offers for his gasoline, diesel and aviation fuel.

“People are ready to pay anything now,” he says. Aliko Dangote's $20 billion refinery complex, which spans “an area nearly half the size of Manhattan” outside Lagos in Nigeria, can process 650,000 barrels a day. It is by far the largest scheme owned by the Dangote Group, the cement-to-sugar conglomerate behind his estimated $28.5 billion fortune. But Dangote, 68, suggests it symbolises something more: seeing the plant as a clarion call for the continent to become more self-reliant. “If we Africans don't lead in the industrialisation of Africa, Africa will never industrialise.”

“No one should confuse the tycoon with an altruist” – Dangote's many critics argue he milks state-backed monopolies in several essential sectors, now including oil. Still, the refinery is “a macroeconomic feat as well as an industrial one”. Last year the International Monetary Fund estimated that, if run at full capacity, it would boost Nigeria's non-oil GDP by 1.5% between 2025 and 2026, and boost official dollar reserves by $5.5 billion annually. Double that, says Business Day Nigeria: Dangote has just announced plans to expand capacity to 1.4 million barrels per day and is also scaling up the group's fertiliser and polypropylene plants. The refinery has blown apart a bad trade for Nigeria, says Business Insider. For decades, it was forced to export its crude – and then spend billions importing refined fuel.

How Aliko Dangote built his billions

Trading runs in the family. Aliko Dangote's great-grandfather, as he told Time in 2014, was “a kola nut trader, and the richest man in West Africa at the time of his death”. His own father was a businessman and politician, though he was raised by his grandfather. “It's traditional in my culture for the grandparents to take the first grandchild and raise it. I had a lot of love, and it gave me a lot of confidence.” After studying business at Al-Azhar University in Cairo, he started trading himself in the 1970s – eventually gaining “exclusive import rights” for cement, sugar and salt, says The Economist. Generations of influence helped. At the turn of the century he started making cement, and Dangote Cement “became the concrete foundation of his fortune”. The move into oil refining promises to be just as transformative.

Aliko Dangote is still the only African among the world's 100 richest people, according to Forbes. He has appointed his three daughters – Fatima, Mariya and Halima – to head key operations across his group, while honing his contacts at events such as Davos – Cherie Blair is an independent director of the group's board. Mild-mannered and courteous in person, Aliko Dangote has a tendency to lecture other wealthy Nigerians on their responsibilities, says Business Insider, especially those seduced by luxury consumption.

“If you have money for a Rolls-Royce, you should go and put up an industry in your locality… or wherever you feel there is a need.” No wonder he puts backs up.

But Aliko Dangote has done Nigerians a real service, says Feyi Fawehinmi in the FT. Since coming online in 2024, his refinery has saved the country “dollars and dignity”. Fuel shortages have long been an “obsession” in Nigeria. But “when supply is reliable “both the economy and the national mood shift”. Dangote's great contribution has been “the quiet revolution of availability”.

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The view that utility companies are a safe haven for cautious investors is out of date. Today's market is far more active and complex than it was even five years ago. New regulations and a strong push from government to improve national resilience are driving this shift.

While headlines dwell on short-term political disputes, the bigger story is that the utility sector is being rebuilt. The drivers of this trend include a massive surge in demand for electricity driven by the digital economy, a regulatory overhaul of the water sector and a new partnership between private capital and the state with a view to lowering risk.

Utility companies come in two main flavours

You can divide the utility companies into two distinct groups. First are the companies that own and operate the heavy assets. They run the water pipes, electricity wires and pylons that keep the country functioning. Second are the service providers. These focus on data, billing and the technology that links the grid to the customer. Each group presents a different investment case.

The UK is at the start of a major, long-term infrastructure cycle and the work ahead is vast. The challenges range from meeting the energy demands of AI to modernising water networks. Both sides of the utilities sector are evolving in response and the market is recognising the growth potential of businesses once seen as dull.

Britain is currently overhauling its industrial strategy and utility companies have moved from the sidelines to the very centre of national-growth policy. For decades, investors treated the stocks in this sector as a set of bond proxies. The stocks were bought for their steady dividends and low volatility, but little else. A series of strategic shifts, driven by government policy, has changed that view.

The grid is the UK economy's main bottleneck

The first major shift is a crisis of capacity in our power networks. As John Pettigrew, the former chief executive of National Grid, has pointed out, the grid is becoming the main bottleneck for the economy. In 2023, he stated that the country needs to build seven times as much infrastructure in the next few years as it has in the past 30.

The problem is that the physical grid was not designed for the modern world. Engineers originally built most of this network to move power from large coal plants in the north down to the south. It was designed to serve houses and light up streets on a cold winter night. It cannot process the sudden, massive surge of electricity needed for the giant data centres that power the modern economy. This has created a backlog of projects waiting to be connected to the grid.

In 2026, the backlog of demand for data centres hit 50GW across 140 different sites. To put that number in perspective, the peak demand for electricity for the entire British grid is roughly 45GW. This means one single industry is now asking for more power than the entire nation uses on its coldest winter night when everyone is indoors using electricity. Global technology giants such as Amazon, Microsoft and Google are driving this demand. They have reclassified the UK as a primary growth zone, but they can't get the power they need because the old wires are at their breaking point.

National Grid has a multibillion-pound plan to reinforce the system. This includes building new substations and using advanced low-loss conductors. These technologies let the grid carry significantly more power without needing to put up entirely new pylons everywhere. This is a high-return path for growing assets because it avoids many of the planning headaches that come with new construction.

To handle the surge in demand, the government and the new National Energy System Operator have officially scrapped the old first-come, first-served model for grid connections. That old system let speculative projects sit on capacity for years, which stopped better-prepared data centres from getting online.

The new so-called Gate 2 reforms now prioritise projects based on how ready they are and how well they fit the national-energy plan. If a project misses its milestones, the operator immediately cancels its connection offer.

This allows National Grid to move from fixing things as they break to investing ahead of time and it can now justify building infrastructure before a data centre is even finished. This shortens the gap between spending money and earning a return, which is a clear win for shareholders.

The era of underinvestment in the water sector is over

A second major shift is happening in the water sector. The industry is moving away from a period of intense public and political tension. This was caused by years of underinvestment, resulting in frequent leakage and sewage spills that polluted rivers. The sector was essentially focusing on the short-term health of the pipes.

Adding to the pressure is the rise of AI; data centres do not just need electricity, they also require millions of gallons of water for cooling, making water companies a vital part of the tech infrastructure.

The 2026 White Paper, “A New Vision for Water”, is about making national infrastructure more resilient. The sector is starting a £104 billion investment programme for the five-year stretch that began in April 2025. This is nearly double what the companies spent in the previous five-year cycle. A single, integrated body that looks at both the environment and public health has replaced the previous fragmented oversight of Ofwat and the Environment Agency. This new regulator cares more about long-term results.

The Water Industry National Environment Programme is the main force behind this massive spending. It puts £24 billion specifically toward cutting sewage spills and cleaning up rivers. The programme requires companies to install thousands of monitors that track water quality around the clock. This ends the days when companies could essentially mark their own homework.

For investors, the focus has shifted from simple efficiency to whether these companies can actually finish such a mountain of work. The new rules introduce 25-year delivery plans to give pension funds the certainty they need by matching investment timelines to the long life of water pipes and plants.

Utility companies have a state-backed safety net

The third, and perhaps most important, shift is the emergence of a new partnership model between the state and utility companies. Historically, massive infrastructure projects were often considered too risky for private investors; if a project failed or stalled, the financial loss could be ruinous. To solve this, Great British Energy and the National Wealth Fund are now fully operational, reducing risk across the sector for investors.

With its £27.8 billion capital base, the National Wealth Fund has attracted more than £100 billion in private investment by offering debt guarantees and taking the first loss on higher-risk projects.

Essentially, the state acts as a buffer and makes projects safer for pension funds to back. This approach is especially valuable for emerging technologies such as long-duration energy storage and small nuclear reactors. Great British Energy also acts as a co-developer. It takes on the early risk of projects failing due to such things as environmental assessments. This leaves listed utilities free to focus on the high-margin work of building and running the assets. Because the state is now a partner in building core infrastructure, the investment risk to the whole system has dropped.

This state-backed safety net is also showing up in the retail energy market. The Great British Energy Local Power Plan provides cash for community energy projects that help keep the local grid in balance. This move toward decentralisation takes the weight off the distribution networks that the big utilities own. It lets these companies hold off on expensive physical upgrades and instead use digital tools to manage demand for power.

As more households pick up smart meters and tariffs that change based on the time of day, the whole system should work better. The shift to a data-heavy grid is turning the retail business into a high-margin tech platform. This change is a big reason why the outlook for the sector is better than it has been in years.

Key themes and plays for investors

The investment case for the listed companies is no longer just simply waiting for a dividend. It is about identifying which can most effectively turn this massive wave of state-backed capital into growing assets. For investors, the current market offers opportunities in companies that are becoming essential to the digital and green future of the country.

National Grid (LSE: NG) is the most obvious name to benefit from modernisation of the grid. As the sole owner of the transmission network across England and Wales, it is the physical gatekeeper of the emerging AI revolution. Under the RIIO-T3 regulatory framework that begins in April this year, the company has secured a real allowed return on equity of 6.12%. This is a decent improvement on the past, reflecting a need to attract more investment as well as the higher cost of funding the great grid upgrade.

Morgan Stanley recently pointed out that National Grid is moving away from being a low-growth utility and becoming a premium infrastructure investment. It highlighted that the company now has an asset growth target of 10% per year – well above the rate of inflation – and is heading toward earnings growth of 6%-8%. The firm is spending billions on 17 major projects to reinforce the north-to-south power corridors – essential for bringing power from offshore wind farms to the data-centre hubs.

The regulatory environment now allows for anticipatory investment. This means the firm can build ahead of demand. Doing so reduces the risk of stranded assets and ensures a steady stream of regulated income. As the asset base grows, the earnings potential of the company increases in a way that was not possible under previous rules. This shift from a yield-based valuation to a growth-based one is a key theme.

SSE (LSE: SSE) is another clear winner that has rebranded itself as a clean-energy champion. The firm is currently halfway through its ambitious investment plan, which involves spending £18 billion on offshore wind and transmission links. What makes SSE particularly interesting is how it has used the new state-utility partnership to lower its risk.

By working with Great British Energy, it can offload the early construction risks that used to weigh on its balance sheet, allowing it to maintain a strong credit rating while still pursuing aggressive expansion.

The partnership with the National Wealth Fund is also providing SSE with first-loss guarantees on complex projects. This is a significant advantage because it protects SSE from the cost overruns that often plague large infrastructure projects, lowering the overall cost of borrowing and raising returns for shareholders.

One could argue that SSE should be viewed as a high-quality infrastructure asset rather than a riskier power generator. This new reality hasn't escaped market attention – the shares have risen by 60% in just the last six months.

The winners in water and retail

In the water sector, the winners will be those who can navigate the new £104bn investment cycle. Severn Trent (LSE: SVT) and United Utilities (LSE: UU) are now working within a regulatory framework that puts long-term resilience ahead of short-term savings. This creates the potential for a large expansion in their regulated capital value, which is the base used to calculate their profits.

Severn Trent has already shown strong revenue growth following the latest tariff reset. The company is using a modular design for its assets, which helps keep construction costs low and delivery speeds high. This operational efficiency is a key driver of value.

United Utilities is also performing well, with a focus on its multi-billion-pound programme to reduce storm-overflow spills. Both companies are likely to benefit from outperformance payments if they hit their new environmental targets.

These companies offer a rare combination of inflation-linked returns and the security of a state-mandated investment cycle. The move to 25-year delivery plans provides the long-term visibility that institutional investors crave.

Centrica (LSE: CNA) and Telecom Plus (LSE: TEP) represent the technology-based, consumer-facing end of the sector. These companies do not own the heavy wires or pipes, rather the data and relationship with customers.

Centrica has moved far beyond its origins as a gas supplier. It is now a leader in flexible energy services, using smart data to help businesses and homes use power when it is cheapest. This capital-light model allows for high margins and strong cash flow without the debt burdens seen elsewhere in the industry. The company has a strong balance sheet and has been returning a lot back to shareholders through buybacks and dividends. Its move to a service-based model exposes it more to the economic cycle, but also provides the possibility of decent returns.

Telecom Plus, better known to consumers as Utility Warehouse, uses a similar approach by bundling energy with other home services. Its ability to use smart-meter data to lower wholesale costs has contributed to its higher levels of growth over the years.

By helping customers balance their own energy needs, it reduces the overall strain on the grid. This creates a win-win situation where the company earns higher margins and the customer pays lower bills. The scalability of this digital model is a significant advantage in a world where physical infrastructure is expensive and slow to build.

The heavy infrastructure is expensive and slow to build. The heavy infrastructure companies that form the core of this sector were stuck in a bit of a rut for a long time.

Over the last year or so, however, a clearer lead from the regulators has really lit a fire under their share prices. Because of that, most of the easy money has already been made, with some share prices rising by more than 50% in just a few months.

Still, we now have long investment horizons thanks to government policy. Patient investors who are happy to sit on these shares for years should see good rewards for the level of risk they are taking on.

National Grid is right at the front of this modernisation. It has gone from being a slow utility to becoming a much faster infrastructure business. It is never going to be a high-speed tech stock.

Nevertheless, its better growth outlook, along with those reliable dividends, offers a level of security that makes it one of the lower-risk stocks on the FTSE. It remains a vital part of Britain's energy future. For investors who wish to build a diverse portfolio of long-term, high-quality businesses, National Grid has a lot going for it.

The two big water companies, Severn Trent and United Utilities, have their own specific hurdles and opportunities to deal with. Both are updating their systems to meet new standards for clean water and service. They are getting a direct boost from the massive building phase the country is going through right now.

For investors looking for income, these are high-quality assets. They offer returns linked to inflation and benefit from a regulatory set-up that is far more predictable than the mess we saw in the early 2020s. There has always been little to choose from between the two as they tend to perform very similarly.

At the other end of the sector, Centrica and Telecom Plus offer a different mix of risks and rewards. These businesses depend much more on how good the management is and how the wider economy is doing. They also have to fight harder for customers in the retail market. However, they don't have to own all the heavy kit themselves.

This capital-light approach has let them keep up very high returns for shareholders through both buybacks and dividends. Telecom Plus, in particular, has shown it can grow even when things get tough by bundling home services into one efficient package.

Forced evolution brings opportunity

The utilities sector is entering a period of forced evolution. By clearing the infrastructure bottlenecks and establishing a clear partnership with the state, the industry is transitioning from being a defensive shelter to becoming a central pillar of national growth. For the patient investor, these companies offer a rare blend of stability and compounding growth, underpinned by the structural demands of the 21st-century economy.

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The war in the Middle East has created a global oil and gas supply shock, similar in scale to the crisis unleashed in 2022 when Russia invaded Ukraine and cut off Europe's gas supply.

In some regards, this conflict threatens to have an even bigger impact on global hydrocarbon markets if it persists. As countries turned away from Russian gas supply in the months and years after the beginning of the Ukraine conflict, buyers turned to Middle Eastern suppliers of liquefied natural gas (LNG) to replace Russian imports.

At the beginning of the year, LNG shipments from Qatar and the United Arab Emirates (UAE) accounted for about 20% of global LNG supply, but these supplies have now been cut out of the market due to the de facto closure of the Strait of Hormuz.

As supply has been cut off, buyers have rushed to secure new cargoes, paying huge premiums. Building facilities to convert natural gas into the super-cooled liquid product isn't for the faint of heart. These plants can cost around $10 billion for a mid-sized facility, although most producers build as large as possible to achieve the best economies of scale.

As a result, price tags of $50 billion-plus are common. The scale of these projects means that most output is sold on long-term agreements before production even begins, so backers know they have a return on investment before committing billions.

About 70% of LNG output globally is sold on long-term contracts, making it hard for buyers who have now been forced to look elsewhere to secure the energy they need. Prices have spiralled as a result. The price of natural gas in Europe increased 70% in a week after the conflict began.

Venture Global is the fastest gun in the west

Enter Venture Global (NYSE: VG). Founded by former banker Mike Sabel and lawyer Bob Pender just over a decade ago, the company has grown from nothing into one of the largest LNG producers in the US, which itself has surpassed Australia and Qatar as the biggest exporter of the fuel.

Venture Global's founders (who still own around half of the company) looked at the cost of building traditional LNG facilities and set out to take a different approach. They modified the design to focus on smaller modular units, which allows factories to fabricate pieces off-site.

The industry was sceptical, but Venture soon proved its doubters wrong. Its inaugural project, Calcasieu Pass, went from a final investment decision in 2019 to exporting fuel in just 29 months, making it one of the fastest LNG plants ever constructed (although, like most LNG projects, it busted its budget to the tune of $1 billion).

Venture plans to become the second-largest LNG producer in the US, behind only peer Cheniere Energy, which produces around 60 million tonnes per annum (Venture has plans to produce a little over half of that). A total of 90% of this is sold on long-term contracts. The total global supply forecast is expected to rise between 460 and 484 million tonnes in 2026 due to new capacity from the US and Qatar.

Unlike Cheniere, Venture has only fixed 70% of its sales. That leaves 30% to sell at the spot market, which could produce a windfall for the business. Indeed, management has said that a $1.00/MMBtu change in fixed liquefaction fees – the spread between the cost of purchasing natural gas in the US and selling LNG abroad – will impact full-year 2026 adjusted Ebitda by $575 million-$625 million.

The company has said it expects full-year Ebitda of $5.2 billion-$5.8 billion, assuming a fixed liquefaction fee range of $5.00- $6.00/ MMBtu. Following the recent turbulence in the market, the spread between US Henry Hub (the US natural-gas benchmark) and European TTF/Asian JKM benchmarks has jumped to as much as $15/MMBtu.

Venture's decision to leave 30% of production available for sale on the spot market could prove profitable this year, but the market has not factored this windfall into the company's valuation. Based on estimates compiled by analysts at investment bank UBS, the stock is trading at a forward, 2026 price-to-earnings (p/e) multiple of just 9.6.

These figures were compiled alongside the company's results for the fourth quarter of 2025, released at the end of February, before the recent conflict began. Based on the company's fourth-quarter outlook and long-term output growth projections, UBS had pencilled in revenue rising from $11 billion in 2026 to nearly $19 billion by 2029, with net income roughly doubling over the same period. All of these numbers are out of date, but they provide a good indication of Venture's estimated growth in a “normal” market.

One of the reasons Venture is so cheap, and has always been since its IPO in early 2025, is related to lawsuits hanging over the firm. In 2022, after the Ukraine war sent gas prices skyrocketing globally, Venture rerouted some of the cargoes destined for its customers with long-term supply agreements, such as Shell, BP and Repsol, to other customers willing to pay higher prices on the spot market. Those traders left out of pocket sued, claiming as much as $6 billion. Over the past few months, after several years of arbitration, the clouds have started to clear. While Venture lost a case with BP, it has won cases against Shell and Repsol, removing a lot of uncertainty.

Don't fear the debt

Another factor that appears to be acting as an overhang on the stock is the company's debt. At the end of 2025, it had a net debt-to-Ebitda ratio of five, leaving little room for manoeuvre. However, with a cash injection expected this year, thanks to the impact of higher natural gas spreads, the company has the opportunity to make a material dent in these liabilities. The stock looks like a promising play on the brewing energy crisis.

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What's happened in the war on Iran?

The US-Israeli war on Iran, and Iran's military response – and the de facto closure of the critical Strait of Hormuz chokepoint – have shaken financial markets across the world. The war has sent oil and gas prices soaring and stocks falling (unless you're a big oil company; Shell hit record highs) and shaken up expectations of future growth (down), inflation (up) and interest rates (up). In the UK, consumers saw fuel prices jump and mortgage lenders scrambling to pull fixed-rate offers, while wholesale gas prices surged by two-thirds – soon to feed through into higher domestic bills. Even if the conflict remains relatively contained, it is already bad news for the global economy and will affect different regions in different ways, with net energy importers (such as the UK and Europe, and much of Asia) hit worse than net exporters (such as the US).

Why is the Strait of Hormuz so important?

The Persian Gulf and its immediately adjoining lands contain the world's greatest abundance of hydrocarbons and four of the world's five biggest oil fields (in Saudi Arabia, Kuwait and Iran) ship their product out through this narrow stretch of water. According to trade analysis firm Kpler, 31% of crude oil passed through Hormuz last year, along with 34% of global fertiliser supply and 32% of methanol, for example. The Strait's closure caused wild gyrations in the oil price this week. There were double-digit surges and falls according to events and to the latest capricious musing from the US president about his take on the war.

What about gas?

Arguably of even more pressing interest to the UK is the fact that 24% of natural-gas liquids and 19% of liquefied natural gas (LNG) also passes through the strait. Britain is at the start of a historic shift from reliance on domestic and Norwegian gas to far greater imports of Qatari gas (that is, from within the Persian Gulf, projected to make up a bigger chunk of the mix than North Sea gas by 2035). Prices of petrol and diesel have nudged up at the pumps, but wholesale gas prices are up around 60%, and will soon be feeding through into household bills and business costs. Nor is it just hydrocarbons and related products, says Neil Shearing on Capital Economics. Crises such as this have a habit of revealing chokepoints that were previously hidden. Qatar produces 40% of the world's helium, for example, crucial to the production of semiconductors.

Which economy will be worst affected?

The Middle East itself will be worst hit economically, as well as in lives lost and communities destroyed. During the 12-day war last summer, Israel's economy contracted by around 1% in the second quarter. If the present conflict is short-lived, a fall in output of a similar order of magnitude would seem plausible for both Israel and the Gulf economies. Iran itself might expect a fall in GDP of 10%. Otherwise, the region most exposed is the world's biggest growth engine, Asia. The Gulf supplies 40%-80% of the seaborne crude imports of China, India, Japan and South Korea, notes The Economist. It also accounts for nearly a third of China's LNG imports, more than half of India's and even more for some smaller Asian countries. Last year, 87% of the crude and 86% of the LNG passing through the Strait of Hormuz went to Asia, making any prolonged closure a grave threat to the region.

Will global GDP fall due to the war on Iran?

Yes, but unless the conflict spirals into a wider regional war in which oil supplies are severely disrupted for a prolonged period, then most forecasts cluster around a moderate global slowdown (of less than 1% of global GDP) rather than a catastrophic collapse. But the situation is extremely hard to predict. In the event of (say) a months-long closure of the Strait of Hormuz, major damage to Gulf oil infrastructure and oil prices rising towards $150 – unlikely, but not impossible – analysts suggest a knock to global GDP of up to 3%. While oil-sector experts are panicking, macroeconomists remain relatively sanguine, says Paul Krugman on Substack.

Partly that's because the US and other major economies have changed greatly since the 1970s. “They have become much less dependent on oil, and they are probably much less prone to experiencing inflationary spirals in the aftermath of an oil-price shock.”

How long might the war on Iran last?

“My bet: longer than you would wish,” says Rana Faroohar in the Financial Times. While Donald Trump has reason to want a quick end to the conflict, given the lack of clear objectives and the political damage from rising petrol prices, the Iranian regime has “arguably much to gain by prolonging the pain with drone strikes and attacks on neighbours in the Gulf. These would further disrupt energy markets, driving inflation higher across the world”. As analyst Luke Gromen put it in a recent newsletter, “Iran does not have to defeat the US military; it just has to defeat the US Treasury market”.

What should we expect next?

As the experience of the Ukraine war showed us, “inflation is not a single punch”: it hits first in fuel, then in food and other consumer sectors. Meanwhile, China, easily the largest purchaser of Iranian oil, may yet “leverage its own geo-economic advantage of having purchased ports all over the world” and of “controlling most of the ships on the planet”. Higher shipping costs spell more inflationary pain. And potential bond-market weakness is made worse by more government and corporate bonds being held by short-term, price-sensitive investors than in the past. All this makes it easy to imagine a rapidly unfolding US and global markets crisis. If the longer-term impact of Trump's foreign adventures is to “push up bond yields, inflation (which will only be partially mitigated by America's own domestic energy supply) and US deficits and ultimately trigger a big Treasury sell-off, the US and global economy will suffer mightily. I suspect, sadly, that this war and this market story will be with us for some time”.

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Where are the safe-haven assets in a crisis? The answer has rarely been murkier. Gold is the usual place to wait out market shocks, but it has struggled for direction since US-Israeli strikes began on Iran on 28 February.

Gold's problem is that it had already risen 20% this year, leaving it “overextended” heading into the conflict, says James Mackintosh in The Wall Street Journal. That made it “an obvious asset to sell” for traders looking to raise quick cash.

“It's hard to overstate just how unusual” trading has been during this war. When stocks fall, gold and bonds usually rise. This time all three assets have fallen, a historical rarity. Where else to hide? “Defensive” stocks (think utilities and consumer staples) usually outperform at times of market stress, says Niket Nishant for Reuters.

Not this time. European consumer staples fell 4.5% last week, worse than the 3% drop on the wider Stoxx 600 index. Traditional safe-haven currencies haven't fared any better. The Swiss franc and the Japanese yen both sold off as bombs dropped on Tehran.

So far, the only traditional safe-haven asset to have done its job is the US dollar, up nearly 2% against a basket of other currencies over the past month. That reflects the fact that as an energy-exporter the US is less exposed to oil shocks, but even this comes with an asterisk. Investors are loading up on “short-term dollar cash” but want nothing to do with long-term dollar assets such as US Treasury bonds, which also slid.

Gilts – traditional safe-haven assets – have been clobbered

UK gilts “suffered their worst week” since the 2022 pension fund debacle, says the Financial Times. Two-year German bonds had their worst week since 2023. That reflects two risks. Firstly, that higher energy costs will raise inflation and delay interest-rate cuts. Pricing shows that traders now put only a 50-50 chance on one Bank of England quarter-point rate cut before the end of the year, compared with the two cuts expected a few weeks ago.

Secondly, concern that a serious energy shock could pressure the Treasury to spend “billions of pounds in new support measures”. While all bonds have sold off, gilts have recently been underperforming French, German and US government paper, partly because the UK is especially dependent on imported energy. When investors took fright in March 2020, they thronged into US Treasuries (and other sovereign bonds) to wait out Covid, says Matt Zeigler in Panoptica Money.

But since then, the hierarchy of “safety assets” has been “fundamentally reordered”. The decisive event was the removal of key Russian banks from the SWIFT banking system in 2022. Holders of “surplus capital” in Asia and the Gulf realised that what “happened to Russia could happen to them”. They are now choosing to forego dollar-denominated assets such as Treasuries when choosing where to stash their wealth.

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The price of heating oil has risen sharply following the US and Israel’s strikes on Iran, meaning many homeowners face the prospect of much higher heating bills.

An estimated 1.7 million UK households, typically in rural areas, use heating oil to warm their homes. The price has surged by more than 113% in recent weeks, leaping from around 60p per litre on 28 February to more than £1.28 per litre on 18 March.

Heating oil is manufactured by processing crude oil, meaning the price is tied to the price of oil – much in the same way that the price of petrol or diesel is.

The majority of households in the UK get their energy and gas from the mains, with millions of people protected by the Ofgem energy price cap. This is set quarterly. The next price cap, in place from April to the end of June, had been confirmed prior to the conflict in the Middle East, meaning energy prices will fall by around 7% for most UK households for the second quarter of the year.

However, as those who use heating oil do not get their fuel from the mains, they will not enjoy the same degree of protection and are particularly vulnerable to market forces during an economic shock.

On Monday, the government confirmed it would step in and offer help to some households that are struggling to keep up with the increased prices, unveiling over £50 million in support.

Chancellor Rachel Reeves said:  “Heating oil prices have spiked sharply, and I know that for families in rural communities that is a real and urgent problem. 

 "That's why we're putting over £50 million of support to help the people who need it most, including funding for the Northern Ireland Executive to deliver support in Northern Ireland where this issue hits hardest.” 

Why are heating oil prices increasing?

When oil prices rise or fall, the price of heating oil soon follows suit.

At the end of February, the US and Israel’s strikes on Iran led to an escalation of conflict in the Middle East, where much of the world’s oil supply is sourced, resulting in large disruption to global oil supply lines.

War in the region makes transporting oil much riskier, as attacks from either side could target ships. Ships carrying oil are not passing through the Strait of Hormuz, through which around 20% of the world’s oil is transported, as the strait is just off the coast of Iran.

This has meant that the supply of crude oil has taken a huge hit and become much more constrained. However, demand for oil has remained the same, meaning that, due to the laws of supply and demand, prices for oil and its derivatives have increased sharply.

The impact of the war will not just be felt in the energy market. Experts have warned that hikes to energy prices may lead to increased inflation, which could lead the Bank of England to pause future interest rate cuts.

Will the government step in to help households?

Households are set to benefit from an over £50 million targeted support package to help with the soaring cost of heating oil, the government confirmed on 16 March.

The scheme is designed to help households who have had no choice but to top up their heating oil tanks during this time of heightened prices to maintain their heating and hot water.

The funds will be distributed through local authorities via the Crisis and Resilience Fund, starting from 1 April, with the scheme targeting areas with higher rates of heating oil usage.

The new scheme will replace the existing Household Support Fund, which will run until 31 March.

Households who are able to demonstrate hardship will be able to benefit from the extra funding by contacting their local authority.

The government also announced it will impose greater regulation on the heating oil market, which it says does not have the same consumer protections as the mains energy market.

Firms that supply energy to households through the mains are regulated by Ofgem, but there is no such protection for those reliant on heating oil.

Moving forward, the government says it intends to do more to protect households reliant on heating oil, including agreeing a stronger code of practice with the industry, and exploring the creation of a new ombudsman or regulator.

Ministers have also said the government will not allow price gouging, and asked the Competition and Markets Authority (CMA) to gather evidence on whether customers are being treated fairly in current market conditions.

If any evidence emerges that customers have been exploited, the government will take action. Prime minister Keir Starmer said: “I will not tolerate companies trying to exploit this crisis. If the companies have broken the law, there will be legal action.”

What other support is available if you can’t afford to buy heating oil?

Alongside the new measures, there are some other forms of support if you are struggling to afford to warm your home after the hike in heating oil prices.

If you can’t afford to buy fuel – or may not be able to in the near future – and can prove it, you may be able to get some help through Citizens Advice.

Support may be available through your local council, as some offer local grants or schemes for people who are reliant on heating oil – this is the initiative that the government’s new “Crisis and Resilience Fund” will replace.

As the new fund will only launch on 1 April, it may be worth checking to see if you are eligible for already-existing support through your local authority.

Meanwhile, the UK and Ireland Fuel Distributors Association (UKIFDA) says if your tank is running low, the best approach currently is to order your fuel as normal, but they add that if you are able to delay purchasing you may consider waiting to see if prices return to normal soon.

More broadly, it is good practice to shop around for your heating oil to make sure you are getting the best deal. Citizens Advice says you should try to get at least three quotes from different suppliers so you can find the best option.

It is also normally more expensive to get an urgent delivery of oil, so it is a good idea to plan your delivery well in advance. You may also get a better deal if you get one large delivery rather than multiple smaller deliveries.

If you are over 75, you should be getting priority deliveries if your supplier is a member of UKIFDA. If you don’t think this is the case, you should check with your supplier that you are on the “Cold Weather Priority Initiative”.

When will heating oil prices go down?

Disruption to the supply of oil, which heating oil is derived from, is the main driver to the price rises we are currently seeing.

That, paired with the fact there is no central regulator that determines prices of heating oil, means households using the fuel are particularly vulnerable to market forces.

To add more complexity, kerosene, which is the chemical most commonly used as heating oil in the UK, is also used as aeroplane fuel, meaning the aviation industry has strong price-setting power over the heating oil market.

Because the oil market is so volatile at the minute, and there is no price cap set in advance, it is difficult to predict where the price of heating oil will go in the future.

This being said, one way to get a rough idea of where the price of heating oil may go in the future is by looking at where the wider oil market will go.

Where prices go next will largely depend on how long the Iran war will go on for, and how safely oil can be transported through the Middle East, but most forecasts expect prices to remain higher than before the conflict for the remainder of 2026.

One key factor for this is that traffic through the Strait of Hormuz is expected to be heavily disrupted for some time, pushing oil prices up.

Economists at the bank ING on 16 March suggested this disruption will keep oil prices high for the rest of the year.

Their forecast is based on the assumption that intensive combat will end by the end of March but will be followed by lower intensity strikes that linger on for several months.

Because of this, they expect 100% disruption in the Strait until the end of March, then 50% in April, 25% in May, 10% in June, and negligible disruption thereafter.

Disruption of this scale would bring the average price of a barrel of oil to around $91 in the second quarter of 2026, $85 in Q3, and $77 in Q4.

If ING are correct, increases in the price of oil to this scale would be seen in the heating oil market, keeping prices higher than they were before the conflict until at least the end of the year.

Bear in mind that making accurate predictions about the price of oil is incredibly difficult at the moment due to the volatility of the situation, so take this forecast with a grain of salt.

It is a bizarre legal action. Jerome Powell, the chairman of the Federal Reserve, the US central bank, has been prosecuted over renovations of the Fed’s headquarters and may now face criminal charges. Given that it manages an economy worth $30trillion and the world’s reserve currency, it is hard to see that the $2.5billion spent on improving the Fed’s offices really matters much. Even so, Donald Trump has clearly decided to use it as a weapon for a full-scale assault on a Fed chairman he would prefer to get rid of.

Powell himself was clear that the legal attack was just a way of bringing the Fed to heel. “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preference of the president,” he said in a statement. In other words, it is a political attack on the Fed and an attempt to allow the president to control monetary policy. If Powell is removed from office by the courts, whoever is appointed to replace him will clearly be taking instructions directly from the White House.

That is a dramatic and dangerous development. This is not to deny that independent central banks are worthy of criticism. Over the past 30 years, they have become too powerful, too confident in their own abilities and too quick to print money. You can make a case that, instead of ensuring greater stability, which is what they were meant to do, independent banks have inflated a series of asset bubbles, indulged spendthrift politicians and prioritised trendy causes while allowing industry to be hollowed out. There is a case for reform. Still, there is a big difference between that and a power grab to hand the right to set rates to the White House.

There are two big problems with that. First, it looks as if Trump is determined to control interest rates himself, either directly, or else through a tame proxy at the Fed. That is not without precedent. In Britain, interest rates used to be set by the chancellor, but the result was that the UK had one of the worst records on inflation in the world before Gordon Brown made the Bank of England independent in 1997. And it is hard to think of a worse person to set rates than Trump. He is temperamental, he constantly changes his mind, he doesn’t listen to advice, and his falling approval ratings mean he will constantly try to cut rates to boost short-term demand. Even more seriously, if the president acquires the right to set rates, it’s hard to see how it will ever be given up. It is too major a power to surrender. The US will have a politicised monetary policy permanently.

How bad will it get under Trump?

Everything else the president is doing appears designed to stop the free market working and drive up prices. The US has already imposed the steepest tariffs since the 1930s, with an average levy on imports of 18%. Closing off its markets to global competition will only drive prices higher and quality down. Only last weekend, Trump promised to cap credit-card interest at 10%, the kind of populist policy you would expect from the far left. Trump has also started capping corporate investment in the housing market. He is directing the oil companies to invest in Venezuela regardless of whether there is an investment case for it or not (with oil at $50 a barrel, there probably isn’t). There does not appear to be a coherent plan, but a whole series of interventions to create markets rigged by the government. State-controlled economies always end up with higher prices.

Add it all up, and one thing is clear – sooner or later the US will see a major rise in inflation. How bad will it get? There is no way of knowing for certain, and it will depend on what else is happening in the global economy. But once prices start to rise we know they are very hard to bring under control again. And if US prices rise, that will drive global prices higher. We can expect inflation to spread to Britain and the rest of Europe very quickly. Investors are already positioning themselves for that, with the price of gold hitting record highs every week. Prices of defensive assets will inevitably go a lot higher.

How did the protests in Iran start?

The latest protests in Iran started with the bazaaris – the normally conservative Tehran merchant class who, two generations ago, were the financial backbone of the 1979 Revolution. On 28 December, shopkeepers in the capital’s Grand Bazaar went on strike in protest at the government’s handling of the nation’s collapsing economy – and their own inability to trade due to the volatility of the currency and inflation. Other businesses swiftly followed, and protestors took to the streets in a wave of protest that rapidly spread to all parts of Iran. Thousands have since been killed in a brutal crackdown by the regime. After a year of economic crisis made worse by the wave of US and Israeli air strikes in the summer, president Masoud Pezeshkian had nothing to ease the sense of a failing government and state when he gave a candid speech in December admitting that he had no solutions and the country was “stuck”. “If someone can do something, by all means go for it,” he told students in a speech that went viral.

What’s happening in Iran's economy?

Last year, the rial lost 45% of its value (crashing to an all-time low against the US dollar), destroying the purchasing power of Iranians. The official inflation rate was 43% (higher than anywhere except Sudan and Venezuela) – taking the price of everyday staples such as bread beyond the reach of some, and hitting even relatively well-off Iranians hard. The economy shrank last year by 1.7%, battered by lower consumption and interrupted oil output from the 12-day war with Israel, with a sharp 2.8% drop expected this year (according to World Bank forecasts). Unemployment is very high in a country of 90 million people, with some estimates putting the employment rate at just 41%. Around a fifth of the population is living below the World Bank’s poverty threshold. Parts of society are experiencing food shortages, due to poverty, while chronic water shortages after five years of drought have added to the sense of desperation – as has the blow to national prestige from the fall of Shia allies and clients such as Assad in Syria and Hezbollah in Lebanon.

What does this mean for Iranians?

All this created the conditions for urban youth and rural workers – frustrated by stagnant wages, lack of jobs and declining life prospects – to join the expanding protests. There is still notable support for the regime and a very divided opposition, which makes imminent state collapse or revolution unlikely, according to most analysts. However, the economic crisis is viewed by most Iranians as part of a wider systemic failure – combining mismanagement, entrenched corruption, a bloated public sector and lack of private investment, elite capture of key sectors (especially by state security actors), and the effects of long-running sanctions.

How have sanctions affected Iran?

The economy has been strangled by ever-tightening Western sanctions since 2012, when then-US president Barack Obama ramped up the pressure over Tehran’s nuclear programme and convinced the EU to follow suit. With Iran cut off from the Swift global payments system, the rial slumped, inflation soared, investment declined, and Iranians felt worse off. That year saw Iran’s first significant contraction since the early 1990s, and since then “growth has been essentially half the rate it was up until that point”, says Esfandyar Batmanghelidj of the Bourse & Bazaar Foundation think tank. Between 2000 and 2012, average annual growth remained steady at 4.4%. Since then, it’s been 1.9%.

What about Iran's oil?

Since the 1979 revolution, Iran has relied heavily on oil and gas exports. They have long funded the state, paid for imports and sustained social spending. In good years, when oil prices were high and exports flowed, growth followed. In bad years, the economy contracted sharply. This dependence leaves Iran unusually exposed to geopolitics. As such, Iran’s fortunes have tended to rise and fall with sanctions regimes and diplomatic turns rather than domestic productivity gains. Each major shift in foreign policy – whether a nuclear agreement or its collapse – ripples through household incomes.

How does foreign policy affect Iran's economy?

After Iran signed its nuclear deal with the US and other world powers in 2015 – sanctions relief in exchange for tight restrictions on nuclear activity – growth rebounded, inflation fell to single-digits, and oil exports rose to a peak of 2.8 million barrels a day (b/d) in 2018, for example. But when Donald Trump pulled the plug on the deal, Iran was once more cut off from Swift and oil exports fell to just 300,000 b/d in 2019. Moreover, sanctions did not simply shrink the economy; they distorted it, creating parallel markets favouring those with connections to the elite, and deepening inequality. More recently, Iran’s vulnerability to external events has also been clear. In the seven months since Israel launched its 12-day war against Iran in June, the rial lost 40% of its value. Annual inflation hit 43% in December, while food inflation soared to 72%, and the price of bread rose 113%. Corruption, on an epic and almost shameless scale, further distorts the economy. The Islamic Revolutionary Guard Corps, the country’s security service loyal to the supreme leader Ayatollah Khamenei, for example, controls a vast commercial and financial sector that “benefits from measures that hammer the wider economy”, says The Economist.

Will Iran's regime survive?

As MoneyWeek went to press, it looked as though the protests were ebbing in the face of the exceptionally brutal and bloody state response. Donald Trump has warned repeatedly that the US would strike Iran again if the government kills peaceful protesters, but as yet, that killing has progressed and intensified with impunity. A crucial factor is the lack of a united opposition. This is certainly a desperate moment for Iran. But while anger and misery are abundant, the lack of coordination – and common ground on what the future should look like – means that it may not yet be a revolutionary one.

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How big is Venezuela’s oil industry?

Venezuela’s oil industry is about a quarter of the size it used to be. Venezuela has the world’s biggest proven reserves of oil, estimated at more than 300 billion barrels, or around 17% of the global total. The oil lies onshore, and the vast majority is in the central Orinoco belt – south of the Orinoco River – in a well-mapped 50,000 sq km zone that’s probably the biggest single hydrocarbon deposit on Earth. But in recent decades, Venezuela’s once-surging stream of oil has dwindled to a trickle. Production peaked in the 1960s and 1970s, when US and British oil companies dominated, producing 3.5 million barrels a day, or around 7% of global output at the time. Following nationalisation (in January 1976) production fell, but then rose again until a late-1990s peak. Since the turn of the century, it has slumped, from more than three million barrels/day to a trough of under 700,000 in 2021 and 960,000 in 2024. That’s less than 1% of global supply and most of it goes to China.

What happened under Chávez?

Venezuela's oil production fell slightly under the socialist president Hugo Chávez (1999-2013), but under his chosen successor – the incompetent, corrupt and increasingly authoritarian Nicolás Maduro – production has cratered as the economy tanked. Decades of corruption, mismanagement, underinvestment and a lack of, or botched, maintenance at PDVSA (the state oil company) have severely degraded Venezuela’s infrastructure and capacity. As Maduro tightened his grip by rigging elections and crushing protests, sanctions imposed by the US (and Europe), especially after they were tightened in 2019, have restricted Venezuela’s access to financing, many international markets and vital new technology. More basically, Venezuela’s heavy crude must be blended with diluents such as naphtha, which is hard to source due to sanctions and related supply issues, thus constraining production. Meanwhile, many skilled workers left the industry – indeed, millions of Venezuelans left the country altogether – compounding technical challenges.

What is Donald Trump’s plan in Venezuela?

To take over and revitalise Venezuela’s oil industry, while “ruling” Venezuela from Washington, with Marco Rubio as the absentee viceroy and the current government still in place. For months, Trump touted his military build-up against Venezuela as an anti-narcotics operation. Within hours of Maduro’s removal, Trump announced, “We are in the oil business”. The oil business in Venezuela “has been a bust, a total bust for a long period of time”, Trump said. “We are going to have our very large United States oil companies… spend billions of dollars, fix the badly broken infrastructure… and start making money for the country.” Having decapitated the regime, the US is apparently content to leave the rest of the regime and state apparatus in place – a strategy that has raised questions about exactly how involved Maduro’s deputy (and new interim president) Delcy Rodríguez was in the US mission.

Was Maduro's capture an inside job, then?

It seems Rodríguez was made an offer she couldn’t refuse, or chose not to. As well as being vice-president, Rodríguez was also Venezuela’s oil minister from 2024 and head of the intelligence service from 2018. According to Bloomberg, US oil-industry executives and lawyers saw her as an impressive figure who was navigating Venezuela’s industry through international sanctions, economic pressures and internal mismanagement. In recent months, the US oil industry reportedly lobbied for her as Maduro’s replacement – and Trump’s team came to the same conclusion. Both groups decided that Rodríguez, long seen as a “bridge between the government and private sector, could stabilise Venezuela’s oil-based economy, and facilitate American business faster” than the opposition leader, María Corina Machado, could.

Hasn’t the US got plenty of oil?

Indeed, the US is the world’s biggest oil producer. What it hasn’t got much of these days is the kind of heavy crude produced in Venezuela. That matters because of a structural tension within the US oil industry as a whole; namely, that its big Gulf Coast refineries, built decades ago, are no longer compatible with the type of oil it now produces. The US’s supremacy in oil has been built on the shale-oil revolution: light crude, most of which gets exported. But “if America is going to keep its cars fed with gasoline, it needs heavy, gloopy crude”, says Ed Conway on his Sky News blog. “And since it costs many, many billions of dollars to overhaul refineries, no one particularly wants to do that anytime soon.” The US might be producing more oil overall, but it’s also importing far more heavy oil. In 1978, only 12% of US imports were heavy. Now it’s 70% – mostly from Canada and a small slice (sanctions notwithstanding) from Chevron’s joint venture in Venezuela.

Was the Venezuelan oil grab an easy win for the US?

Hardly. For starters, there’s the sheer scale of the investment required to repair and retool Venezuela’s crumbling infrastructure. According to analyst Jorge Leon of Rystad Energy, roughly doubling production to two million barrels by the early 2030s will cost an estimated $115billion. That’s three times the combined capital expenditure of ExxonMobil and Chevron last year. At current oil prices, around $60 a barrel, and with the world already oversupplied, there’d have to be a truly compelling case for major investment in Venezuela, with its relatively low-quality, cheap oil that’s pricey to refine. Right now, that’s just not there.

Why not?

Because not much has changed except the president, and the economics doesn’t stack up. Venezuela has not suddenly become a better place for the likes of Chevron and Exxon to invest billions, says Yawen Chen on Breakingviews. “It’s the same military-dominated petrostate with corruption issues as before, plus a potentially even worse security situation” – and certainly a more unpredictable one. The country is awash with guns, as Ambrose Evans-Pritchard points out in The Telegraph, and paramilitary “colectivos” exact fees before letting a single barrel move. For oil companies to invest would require the kind of political stability and respect for property rights that once helped make Venezuela one of the richest countries in the world. Trump’s snatching of Maduro was “spectacular and swift”, says The Economist. “The economic reward from it will be neither.”

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Three UK blue chips stocks to consider

One of our key holdings is National Grid (LSE: NG), a critical infrastructure provider central to Britain’s energy transition. The company is embarking on a substantial investment programme, with plans to spend £60 billion over the next five years. This capital deployment is aimed at scaling up capacity to meet growing demand for electricity driven by the electrification of transport, heating and industry.

National Grid’s investments also underpin the UK’s shift towards renewable energy, reinforcing its pivotal role in a low-carbon future. With a regulated asset base, long-term earnings visibility and inflation-linked revenues, National Grid offers resilient financial returns and defensive characteristics, making it a core holding for income-focused investors.

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At current levels, BATS trades at an attractive valuation relative to its earnings and cash-flow potential. In our view, this combination of capital growth prospects, income generation, and strategic repositioning makes BATS a compelling opportunity. While tobacco remains a controversial sector, we believe that the risk/reward profile for BATS is particularly favourable given its financial strength and ongoing transformation.

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The UK renewable energy sector cannot catch a break. At the end of October, the government launched a consultation on changing the Renewables Obligation Certificate (ROC) scheme that subsidises some renewable-energy production. At present, the subsidies are linked to inflation using the retail price index (RPI) measure, but they may now be switched to the consumer price index (CPI). RPI usually rises faster than CPI (the gap varies, but one percentage point is a rough rule of thumb), and so this would mean that subsidies rise more slowly in future.

The government has proposed two options for this. One is to switch to CPI in 2026. The other is backdate the change to 2002 (when ROCs were introduced) by freezing the current price until a new “shadow price” linked to CPI since 2002 catches up with today’s RPI-linked price, and thereafter increase with CPI. Neither are good, but the latter option is clearly worse. Hence shares in listed renewable energy investment funds (REIFs) slumped further, having already been battered by a series of setbacks and problems in recent years.

The changes would have no direct impact on new investments – the ROC schemes closed to most new applications in 2017. However, existing wind and solar farms have been promised subsidy payments until 2037 in some cases, so the changes will affect their earnings. More broadly, making retrospective changes undermines the assumptions on which existing investments have been made. That will erode investors’ confidence in committing future capital.

While the subsidies are ultimately paid by users as part of their energy bill, the change from indexing on RPI to using CPI is likely to mean a minimal reduction in the average household bill. At the same time, it will probably raise the cost of capital for future projects, making it ultimately self-defeating, argue infrastructure funds. Certainly, one has to feel that the government’s Clean Power 2030 (CP30) plan – which assumes £40 billion of private investment a year in green energy between now and 2030 – now seems wildly optimistic.

Losing patience with renewable energy funds

The direct impact of the change on listed REIFs will depend on which option is chosen (and on how much ROCs contribute to their income – typically 40%-50%). For many investors, this may feel like the final straw – yet more evidence that the sector is both unlucky and dysfunctional. While the government is clearly to blame for this particular shock, the way that the REIF sector has developed in recent years hasn’t encouraged investors to give it the benefit of the doubt. One can’t treat all REIFs as exactly the same and I’m going to focus largely on the solar funds here, but many of the problems apply more widely.

Bluefield Solar Income Fund (LSE: BSIF), Foresight Solar Fund (LSE: FSFL) and NextEnergy Solar Fund (LSE: NESF) put out statements saying that the impact on net asset value (NAV) would be around 2%, 1.6% and 2% respectively under option one and 10%, 10.2% and 9% under option two. This sounds manageable. However, we immediately get onto the question of how much investors trust these reported NAVs, which are based on fair value accounting and “mark to model” assumptions. The fact that most REIFs trade on 30%-40% discounts to NAV implies some scepticism about these valuations, while the fact that dividend yields are in the 10%-15% range suggests some concerns about their sustainability.

The original sin in the REIF model is that it was built around being able consistently to issue shares at premiums to NAV to fund new projects. REIFs were marketed as a growing income story in a low-yield world, with the added bonus of a green angle during the economic, social and governance (ESG) boom. Yet they were always paying out cash with one hand while taking it in with the other (hence NESF’s shares outstanding have doubled from 278 million 10 years ago to 555 million currently). This model only worked when the shares traded at a premium to NAV – now that they don’t, the REIFs no longer have access to cheap equity. Debt is no longer cheap either. It might make sense to cut dividends and reinvest the cash, but that would alienate investors who bought for income.

While this explains their growth problem, the opaqueness of returns explains why many investors are wary of them even as a limited-life income asset. In theory, the NAV represents the current value of future expected cash flows. The focus on this – and on paying steady dividends – makes it look as if REIFs have very simple, predictable economics. Reality is more complicated. Projected revenues depend on power price forecasts that come from third-party forecasters. When these change, so do NAVs. Meanwhile, actual performance has plenty of real-world complications.

For solar, there’s the amount of sun that falls on the panels. There’s whether it all gets used or whether grid outages means some gets wasted (FSFL had UK production 8.9% above budget in the first half, but would have been 13% higher without outages). On sunny summer days, there will be points when a surplus of solar power floods the system and sets the marginal price (at extremes the unsubsidised price can even go negative). Hence the “capture price” that solar farms get can sometimes be less the base load price (the price for steady, always-on power) – this summer, capture rates have frequently dropped to 80%. And if the grid physically can’t cope with the power being supplied, producers may be curtailed (turned off) by the system operator, meaning lost revenue.

Since the REIFs’ lenders and shareholders prioritise stability, the managers fix prices for much of their output in advance with power purchase agreements (PPAs). However, this means that they don’t capture much upside from spikes in spot prices (driven by higher gas prices, which set the marginal UK power price most of the time). All these factors come together in a bewildering series of assumptions. To take just one example, NESF’s short-term power price assumptions have fallen 56% from £139 per megawatt hour (MWh) in September 2022 to £61/MWh in September 2025. Longer-term power price assumption has risen 22% over the same three-year period. Yet its 20-year average price forecast has halved since it floated in 2014, pointing to long-term downward pressure.

Can renewable energy funds win back nervous investors?

What is the result of trying to distil such complexity into a single NAV that constantly changes? It is doubt about whether management are trying to mask poor economics with financial engineering, unconsolidated statements, fair value accounting and unverified assumptions. The accounting might technically be correct, but it is opaque and hard to compare between funds. Each time forecasts prove too optimistic and NAVs get downgraded, scepticism grows. This is why the REIFs now trade at huge discounts to NAV. (Policy risk – as demonstrated by the government’s proposed ROC change – may be another factor.)

Most of the REIFs seem to have little idea of how to get investors to trust them. They have tried to address the discount to NAV with share buyback programmes, but these have been too insignificant to counter the wave of selling. What’s more, buybacks often increase leverage: in May this year, NESF had to pause its buyback as leverage would have increased beyond its 50% debt-to-gross asset value policy limit. Rising debt is exactly what nervous investors don’t want to see.

Many have tried to sell assets, which would raise cash to pay down debt and fund buybacks while also validating NAV through real-world selling prices. This process has been slow, suggesting it may be hard to achieve prices respectably close to NAV. For example, in April 2023 NESF said it would sell 246MW of UK subsidy-free solar capacity across five separate projects. At present, there are still two project with 100MW yet to be sold. Last year, FSFL said it would sell its Australian portfolio (170MW across four sites), but the process has now been paused. A small number of bids for the portfolio were received, but none were deemed deliverable. In March this year, it earmarked a further 75MW for sale, with no results so far.

More recently, Bluefield proposed merging with its manager to focus on developing a 1.4GW pipeline of projects. However, that model implied a cut to the dividend and was quickly rejected by shareholders (if they were sceptical about the potential returns on capital, it is not surprising given the sector’s record). The fund was forced to ditch this and put itself up for sale. This has not steadied the decline in the share price, which has fallen to new lows below 70p, with a yield of 13% and a discount to NAV of 39%.

Until now, REIFs that have faced continuation votes have largely won them despite these woes – probably because investors are sceptical that they can sell their assets, pay back the debt and achieve a decent return for shareholders. This detente may be changing as investors get more anxious. The chairs of NESF, FSFL and BSIF have all stepped down in the past year and new brooms may be minded to sweep clean.

We could be reaching the point of maximum pessimism, as seems to have happened with battery funds. I have a position in NESF, bought on the basis that the dividend could well be cut, but that much of the bad news was already in the price with a yield in the mid-teens. Still, if the REIFs’ accounts clearly told us how much cash is being generated per pound invested per MW and whether it is declining, it would be much easier for investors to decide whether they still want to back these “sustainable” investments.

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What happened at COP30?

Last month’s climate jamboree in Brazil, COP30, was a damp squib – and not just due to the torrential rain that poured through the venue’s leaking ceilings. The UN’s 30th Conference of the Parties had been touted as the moment when there would be a move from pledges to implementation. But action was little in evidence.

For the first time, the US boycotted the conference. China was there, but studiously avoided stepping into the leadership vacuum. The summit ended with a watered-down resolution that made no direct mention of fossil fuels, the main driver of global warming. And at a summit held in the Amazon rainforest city of Belém, delegates failed to agree the hoped-for road map to a global deforestation accord.

Did COP30 achieve anything?

The summit adopted a set of 59 global indicators to track progress toward the Global Goal on Adaptation (GGA) and agreed on the next round of National Adaptation Plans, bureaucratic scorecards that represent an important and growing recognition that adaptation and mitigation – not just emissions cuts – must be part of global climate action. These were backed up by national commitments to triple adaptation finance by 2035 to roughly $120 billion a year.

But the defining feature of COP30 was the failure to even mention fossil fuels in the final resolution, even while explicitly acknowledging – for the first time – that the world is now likely to “overshoot” the 1.5˚C warming target in the 2015 Paris Agreement.

Is it time to scrap the COPs?

Many think so. The COPs have long been attacked as talking shops that spew a lot of hot air about hot air – issuing countless warnings about the cost of inaction but rarely managing to agree solid proposals for how the world should halt dangerous rising temperatures. In the 30 years since the first congress in Berlin, greenhouse gas emissions have risen by 34%. That’s slower than the 64% increase over the three previous decades, but not nearly enough to stop temperatures breaching the thresholds that scientists say will cause irreversible damage to the planet.

Looked at another way, though, without the Kyoto (1997) and Paris (2015) COPs, the situation would be far worse. Simon Stiell, head of the UN’s Climate Framework, calculates that, without the COP process, world temperatures would now be heading for a truly catastrophic 5˚C of heating, instead of the 2.5˚C increase – merely disastrous – that is now projected.

What’s happening to temperatures?

They are going up. This COP had an inauspicious run-up, in that early last month the UN’s Emissions Gap report confirmed what had long been known: that the steady increase in carbon emissions since Paris means global temperatures will rise beyond 1.5°C above pre-industrial levels. Global temperatures have surged past that mark in some recent years, with 2023 and 2024 ranking among the hottest on record. The 30-year rolling average – the benchmark used by the Paris deal – is still just below that level, at about 1.37˚C.

To keep even a 50% chance of limiting warming to 1.5°C, the world must cut emissions roughly 55% by 2035, compared with 2019 levels. But the national plans submitted within the COP process offer a fraction of that, putting the world on track for roughly 2.5°C of warming.

Are emissions now falling?

No. Global fossil-fuel emissions hit record highs in 2025, with the world emitting roughly 39.1 billion tons of planet-warming carbon dioxide, according to the Global Carbon Project. That’s 1.1% more than in 2024. A relatively small number of big countries account for most of the world’s emissions, with China responsible for 32%, the US 13%, India 8% and EU nations 6%.

Though emissions are still rising in the US, one promising sign is that they are now flatlining in China, after years of surging. Even so, the International Energy Agency projects that demand for coal, for example, will remain at around record highs until 2027. Demand is still rising in China, India and other developing countries, offsetting falls elsewhere.

So climate diplomacy has failed?

It may be becoming less important. It’s a “COP cliché to say the pavilions where countries host talks on green projects, technologies and trends are more interesting than the formal negotiations”, says Pilita Clark in the Financial Times. What became clear in Belém is that things are changing in the real world regardless of what gets agreed at COPs. In developing countries, from Ethiopia to Nepal, sales of electric cars are surging exponentially. Renewable energy is booming everywhere from Ukraine to Pakistan.

The economics of energy continue to shift decisively in favour of decarbonisation, agrees Paul Polman, the former CEO of Unilever, in Time. Meanwhile, the “centre of gravity is shifting” at COPs – with much of the most important progress happening “around the formal process and despite its limitations”.

What's changing?

In Belém, for example, the Action Agenda – a non-negotiated process – saw businesses, investors and city authorities set out investment plans totalling $1 trillion for clean energy and grid expansion by 2030. And the Netherlands and Colombia jointly announced a non-COP international conference in 2026 to develop an equitable, science-based road map for phasing out fossil fuels.

The institutions of multilateralism still matter greatly, but “may no longer be the primary engine of climate progress”. Businesses – organisations that plan far beyond political cycles – will increasingly be at the forefront, while the COP process must evolve to become simpler and implementation-oriented, or risk losing all credibility.

Indeed, last month’s jamboree may be “remembered less for what it resolved and more for what it exposed: that ambition is outpacing architecture, and that the world is ready to move faster than the institutions designed to guide it”.

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“The true investor… will do better if he forgets about the stock market and pays attention to his dividend returns.” – Benjamin Graham

Dividend income has always been one of the key contributors to equity-market returns, especially in periods of volatility or bear markets. In the 1970s and 2000s, both periods of significant market volatility for the S&P 500, virtually all of the index’s returns came from income, according to data compiled by Bloomberg and Guinness Global Investors. In the 1970s, the index recorded growth of 76.9%, with 17.2 points coming from price appreciation and 59.7 from dividend income. In the 2000s, the index fell by 24.1%, but dividends added 15 points for a total return of -9.1%.

The longer one stays invested, the more critical dividends become. Guinness Global’s data, going back to 1940, reveal that, over rolling one-year periods, the total contribution from dividend income to total return was just 27%, but that number grew to 57% over a rolling 20-year period. They also reveal that $100 invested at the end of 1940, with dividends reinvested, would have been worth approximately $525,000 at the end of 2019, versus $30,000 with dividends paid out. In this period, dividends and dividend reinvestments accounted for 94% of the index’s total return.

The same trend has been observed in the UK. Between 1 January 2000 and 31 December 2019, the FTSE 100 delivered an average annual return of just 0.4%. However, if you include dividends, the index has actually returned 122% over the same period (or 4% a year), according to Schroders’ calculations.

Headwinds for dividend stocks during the pandemic

Still, there’s a reason the figures presented only go up until 2019. Since the pandemic, this relationship has broken down. The latest data from S&P Global show that, since 1926, dividends have contributed about 31% of the total return for the S&P 500, while capital appreciation has contributed 69%. That’s mostly down to the performance of the past five years.

Since the end of 2021, dividend stocks, as defined by the S&P 500 Dividend Aristocrats index – S&P 500 constituents that have followed a policy of increasing dividends every year for at least 25 consecutive years – have produced a total return of just 9% a year compared with 15.6% for the broader S&P 500 index. This decade, dividends have added just 12% to the S&P 500’s total return, the lowest contribution on record, says Hartford Funds.

As Ian Lance, co-manager at the Redwheel and Temple Bar Investment Trust, notes, equity returns have been “driven by a positive re-rating of equities, particularly in the US and particularly in technology stocks”. Dividend stocks were also hit disproportionately hard in the pandemic years. During 2020, $220 billion of dividends were either cut or paused, according to Janus Henderson.

Research by Goldman Sachs found that more than 80% of US dividend exchange-traded funds (ETFs) underperformed the S&P 500 during the 2020 equity drawdown period, and half of them did not bounce back as strongly as the index in the subsequent recovery.

Dividend stocks also “tend not to perform well when interest rates rise”, as Alan Ray, investment trust research analyst at Kepler Partners, notes. “Investors drawn to conservatively managed dividend-paying companies when interest rates were close to zero now find they can buy ‘risk-free’ UK gilts with yields of 4% or 5%, or even just keep cash in a savings account,” says Ray.

When to trust the dividend yield

Despite the headwinds for dividend stocks over the past five years, history shows they can be a safe haven in periods of volatility and uncertainty. What’s more, many income stocks are now trading at relatively undemanding valuations compared with their growth peers, suggesting there’s a bigger margin of safety with these equities in the event of a market downturn.

There’s no official definition of what makes a good income stock, but there’s one thing most of the research on the topic agrees on, and that’s a correlation between yield and quality, or rather the lack of it. While a dividend stock with a high yield might seem attractive as an income play, more often than not the yield is a reflection of traders’ doubt about the sustainability of the payout.

As Martin Connaghan, co-manager of Murray International Trust, notes, “there is no point in being drawn in by a high dividend yield… because that yield is most likely unsustainable and hence false. Stocks that have, on the face of it, very high yields can be vicious value traps if dividends are subsequently cut.”

In fact, research shows that, rather than chasing high yields, investors should instead look to companies offering yields around the 2% to 4% mark. Yield itself should not be used as a gauge of quality. The best way of evaluating the sustainability and quality of a dividend payout is to analyse the quality of cash flows. In business, cash is king. Cash flow gives a good indication of management’s approach to capital allocation.

As Imran Sattar, portfolio manager of the Edinburgh Investment Trust, notes, “For stocks with higher yields it is important to understand the sustainability of that dividend, how much the dividend is covered by earnings and free cash flow, or ongoing capital generation in the case of a bank… and also to think about whether there is anything on the horizon that could change the cash-flow dynamics such as an increased need for investment.”

This view is echoed by Connaghan, who says, “The ability to sustain and grow dividends is essential. Companies with a high cash-conversion ratio, dividend cover and free cash-flow yield should be in a much stronger position to do this.”

Free cash flow is generally defined as the cash flow generated by operations, excluding the costs of running the business and capital expenditures. In a traditional capital allocation framework, if a firm has free cash to spend, it should first reinvest it back into its operations if it can achieve an attractive and sustainable return on investment. If this opportunity is not available, the company should use the money to reduce debt, and if it has no debt, return the money to investors.

Cash flow figures give us a real, unabridged version of what management is doing with a company’s funds. Investors often turn to earnings before interest, tax, depreciation and amortisation (Ebitda) as a proxy for cash flow, as that’s the metric companies usually like to present. However, this ignores essential business costs, such as the replacement of capital equipment, interest on debt and taxes.

Similarly, a simple dividend cover calculation, which generally takes earnings per share divided by the dividend per share, also provides a misleading picture. Earnings per share do not account for all capital expenditure, particularly on long-term assets, which can be extremely costly for capital-intensive companies. When a company pays a dividend, the money leaves the business. That means the capital must be truly surplus to requirements to prevent problems emerging at a later date.

History is littered with companies that have paid out too much during the good times and have struggled with weak balance sheets and a lack of shareholder support in the bad.

The best dividend stocks

The best dividend stocks are those in companies that strike a balance between operational costs, including capital expenditures, and prudent balance-sheet management, along with sensible dividend policies. And they avoid the damaging concept of a “progressive dividend policy”. Progressive policies envisage the dividend rising steadily year after year. They are designed to provide security for investors. In fact, they do the opposite.

Companies always have and always will go through cycles, and making a commitment to increase a dividend year after year, no matter what, forces management into wrong decisions. It’s difficult to cut a dividend when such a policy is in place, which often puts firms in difficult positions, having to pay out more than they can afford.

Some of the most sensible dividend policies are based on small regular payouts, with annual special dividends based on profit throughout the year. This gives more flexibility, allowing management to announce additional distributions as needed without putting undue stress on the balance sheet. Managers can also choose to alternate between dividends and share buybacks, the latter being easier to turn on and off depending on the business environment.

FTSE 100 insurance giant Admiral is an excellent example. Car insurance can be a volatile and unpredictable business. It moves between a hard market when insurance prices are rising and profits are plentiful and a soft market where competition intensifies, prices fall and insurers have to stomach big losses. Managing a business through this cycle requires financial flexibility and a strong balance sheet, so Admiral cannot afford to commit itself to an unsustainable dividend policy. Instead, it commits to distribute 65% of its post-tax profits annually as a regular dividend, supplementing these distributions with special payouts.

For example, for the first half of the year, Admiral declared a regular dividend of 85.9p per share and a special dividend of 29.1p per share, for a total distribution of 115p, or 88% of post-tax profit. This was a pretty hefty interim distribution for the group. In 2021, a bumper year following the pandemic, which forced a change in driving habits and a substantial reduction in accidents, the company’s annual dividend payout reached just under 280p per share. However, in the following years, as drivers returned to the road and started crashing into each other, the company reduced its distribution in line with falling profits. For the 2023 financial year, it paid out just 103p across both its interim and final dividends.

Another example is CME Group. It pays a regular quarterly dividend, equivalent to a yield of about 2% per year. It supplements this with a special distribution at the end of the year based on annual trading performance. Last year, for example, the company paid out four regular dividends of $1.15 per share and one final special dividend for the year of $5.25.

The perils of a regular dividend policy became all too clear in the mining sector back in 2016. That year, commodity prices slumped as China’s previously meteoric growth started to splutter to a halt, leaving mining giants such as BHP, Rio Tinto, Glencore and Anglo American in a difficult position. Not only had these companies made a commitment to hefty, regular, progressive dividends based on past profitability, they had also spent and borrowed heavily to fund growth.

As commodity prices and revenue plunged, something had to give. BHP cut its interim dividend by 75%, the first cut since 1988, and abandoned its progressive dividend policy. Rio also slashed its dividend in half and Glencore was forced into a messy restructuring involving a $2.5 billion cash call, as well as a dividend cut.

In another example, BT had to cut its dividend in 2020 when management realised the company needed to spend more on its fibre build-out to keep up with the competition. This was a big blow for income investors as prior to the cut BT was often touted as one of the UK market’s top income plays.

Where to hunt for dividend income

Sensible capital allocation is a good indicator of dividend quality, as is the overall quality of the business. Quality can be defined in many different ways. Warren Buffett summed it up quite well in his letter to shareholders of Berkshire Hathaway in 1996: “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, 10 and 20 years from now.”

To put it another way, a quality company is one that has a strong competitive advantage and a long runway for growth. A strong competitive advantage also typically translates into higher-than-average profit margins, providing the company with ample cash to invest in marketing, growth and debt repayment, and to return funds to shareholders.

James Harries, co-manager at STS Global Income & Growth Trust, says the best income stocks are “predictable, resilient, high-quality businesses” you can “say something sensible about on a five-,seven- and 10-year view”. That often means sticking with the companies that he describes as “steady as she goes” – they often “grow slower, but [grow] more persistently”.

A great example of the strategy, and a recent addition to the portfolio, is Nike. “It’s the highest quality global sports brand,” notes Harries, and though the company is going through some turbulence, “I’m pretty confident that we’re buying a really high-quality asset at a very attractive valuation”. Nike is one of the best-known and valuable consumer brands in the world, boasts a gross profit margin of more than 40%, and has billions of dollars in net cash on the balance sheet. It’s also rewarding shareholders, with $591 million in dividends in the first half of 2026 and $18 billion returned via share buybacks since June 2022.

The utilities sector can also be a good place to hunt for income. “Often a utility company operates in a regulated sector that is supported by a long-term concession contract, which will stipulate the return that can be generated over the life of the concession,” notes Jacqueline Broers, co-portfolio manager at Utilico Emerging Markets. As a result, cash flows can be more “resilient” and “predictable” than those of other sectors. “All of which translates into a more sustainable long-term dividend payout.”

Broers highlights the example of IndiGrid Infrastructure Trust, which owns 41 power projects comprising 17 operational transmission projects, three greenfield transmission projects, 19 solar generation projects, and battery energy storage (BESS) projects located across 20 states and two union territories in India. The average remaining contract life on the company’s transmission assets is just under 26 years, with contracted revenues underpinning the company’s dividend yield of about 10%.

The other advantage utilities tend to have is the prohibitive replacement cost of their assets. Take UK-based National Grid, which owns the majority of the UK’s high-voltage transmission network, comprising thousands of miles of cables and transmission stations. Building these assets from the ground up would be virtually impossible today, not to mention the vast cost. That gives the company a robust competitive advantage.

Utilities aren’t the only companies that can have such an edge. Connaghan points to the likes of Grupo ASUR, a Mexican-listed airport operator with 16 assets across Central and Latin America. “Its key asset is Cancun airport and the company has seen its passenger numbers increase by a compound annual growth rate of 6% over the last 35 years,” he says. “Such was the financial strength of this business in the earlier part of this year that in April, they announced two 15-peso special dividends in addition to a regular dividend of 50 pesos. This put the stock on a 14% dividend yield.”

The fund manager also highlights the likes of Enbridge, a Canadian pipeline business which transports and stores natural gas and oil through its network, which spans North America. The company has grown its dividend for 30 years in a row. “This type of business is far less exposed to the underlying shifts in the commodity prices themselves, as 98% of its Ebitda comes from assets backed by either regulated returns or take or pay agreements,” he notes.

Investment trusts for dividend income

The structure of an investment trust lends itself to income investing. Not only do they give investors access to a well-diversified portfolio of income stocks, but they can also pay dividends out of both capital and income, unlike ETFs and other open-ended investments. That means trusts are more likely to be able to sustain their dividends in periods of market volatility. Trusts with a global mandate also have far more flexibility in where they can invest so they can pick the best income, quality and growth plays in the world.

JP Morgan Global Growth and Income (LSE: JGGI), Murray International (LSE: MYI), Scottish American (LSE: SAIN) and STS Global Income & Growth (LSE: STS) all have a global mandate. Ecofin Global Utilities and Infrastructure (LSE: EGL) has a global mandate within its utility sector. Others, such as Law Debenture (LSE: LWDB) and Temple Bar (LSE: TMPL), have a UK focus, but with some international holdings.

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Canada’s stocks have enjoyed a revival this year. The S&P/TSX Composite index has gained 25%, eclipsing America’s S&P 500, up just 16%. Canada has been one of 2025’s best-performing developed markets, an early sign that the post-globalisation era will reward a very different set of winners.

With economies reshoring and supply chains shortening, the natural lottery of geography and geology has never mattered more. Few nations have hit the jackpot quite like Canada, which ranks among the world’s top-five energy producers and sits atop $1.7 trillion of natural-resource wealth from oil, gas and uranium to potash, gold and timber.

Crucially, Canada pairs this abundance with political stability and alignment with the West, which is a rare combination in a world of rising authoritarianism. As Washington turns inward, Canada’s calmer politics, under the steady hand of prime minister Mark Carney, could become a safe haven for investors seeking exposure to the decade’s defining themes without populist noise.

Canadian stocks for your portfolio

Canada’s most strategic energy resource may be uranium. As the world’s second-largest producer, it stands to gain as nuclear power returns to the global electricity mix. Governments are extending reactors’ lifespans, new builds are back on the agenda, and even the Magnificent Seven are investing in nuclear projects to power AI data centres’ colossal energy needs – demand that could require 50 new reactors by 2030.

After years of supply cuts following the disaster at Fukushima and the West’s retreat from dependence on Russian energy, markets are turning to reliable producers such as Canada. At the heart of this revival sits Cameco (Toronto: CCO), one of the world’s largest and most cost-efficient uranium miners. In partnership with Brookfield and Westinghouse Electric, it plays a central role in supplying Western markets. The shares look promising as miners scramble to restore supply after a decade-long glut. The infrastructure sector has benefited from nearshoring, electrification and decarbonisation. The $1.2 trillion US Bipartisan Infrastructure Investment and Jobs Act alone is funding more than 66,000 projects, while Carney’s industrial strategy aims to channel billions into Canadian clean energy, advanced manufacturing and critical minerals.

Stantec (Toronto: STN), a global leader in sustainable design and engineering, is a clear beneficiary. Its diversified footprint across energy, water and transport positions it perfectly for North America’s rebuilding cycle. A focus on efficiency has delivered industry-leading profit margins, while exposure to US and Canadian infrastructure spending bodes well for growth.

Canada’s answer to Nvidia

Technology is a further major driver of the portfolio. We first bought Nvidia in 2016 at an average price of around $1.35 and have benefited from its meteoric rise ever since. But we have found the next wave of opportunities closer to home.

Celestica makes high-speed components to expand global data centres. With Nvidia, OpenAI and Oracle investing hundreds of billions of pounds in new AI computing power, Celestica sits in the middle of the supply chain. With Celestica’s sales from AI-related hardware surging 80% last quarter, we can access all the disruption of Silicon Valley at a Canadian discount to heady US tech valuations.

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Renewable energy trusts were already struggling before the government decided to kneecap them at the end of October. In a major shock, it has launched a consultation on changing the inflation linkage on the subsidies they receive from the retail price index (RPI) to the consumer price index (CPI) in April 2026, three years sooner than expected.

Even worse, the government has floated a second, complex option that would backdate the switch to 2002. This may have been thrown in mainly to make a April 2026 change sound like a concession, but if actually implemented could reduce the income received by generators by billions of pounds over the coming years. The market reacted accordingly and the sector as a whole lost about 5% of its market value on the day.

Why is the renewable energy trusts industry struggling?

The proposals have created yet another cloud of uncertainty over a sector that was already unloved by investors. The industry has been caught in a “perfect storm” and is ill-equipped to deal with its current challenges, says Pietro Nicholls of RM Funds, an activist that has been battling battery-storage fund Gore Street Energy Storage Fund (LSE: GSF). Many of the trusts’ boards lack the experience required to address these problems, he argues. So instead, they’ve turned to easy ideas such as share buybacks.

Part of the problem is uncertainty over reported net asset values (NAVs). “An infrastructure or renewable investment trust NAV calculation is generally based on a number of different asset-specific (eg, output, power prices or project cash flows) and macro (eg, inflation or foreign exchange rate) assumptions, with individual trusts using different inputs to calculate the NAV value,” says Ashley Thomas of broker Winterflood. For example, if Greencoat UK Wind (LSE: UKW) were to use the same power price assumptions as Renewables Infrastructure Group (LSE: TRIG), its NAV would be lower than currently reported, estimates Winterflood. Since these are just assumptions, it is hard to say which numbers are more appropriate, but with so many variables, NAVs are undoubtedly highly subjective and volatile. Across the sector over the past 18 months, NAV changes have ranged from +8% to -7%, says Winterflood.

Feuding with renewable energy trust managers

It is regrettable that many managers were paid fees based on a percentage of NAV rather than performance. This became increasingly controversial once shares traded far below NAV. In the past year, many trusts have belatedly shifted to levying fees on a 50/50 mix of NAV and market value (or in UKW’s case, entirely on market value). Dealings with managers are becoming a common point of contention. Take Aquila European Renewables (LSE: AERI), which has agreed to sell assets to another fund advised by Aquila at a large discount to the current NAV, says Nicholls. How can the same manager assign two different values to the same assets? Or take a plan by Bluefield Solar Income Fund (LSE: BSIF) to merge with its manager, saying this would make to easier to invest in new projects. The trust has instead put itself up for sale after a backlash. Or just this week, TRIG has said it will merge with HICL Infrastructure (LSE: HICL), run by the same manager.

These developments show a lack of concern for investors, says Nicholls, which is clouding the real value of the assets. “If boards were more respectful of shareholders, the share prices would be a lot higher.”

It isn’t clear what it will take to shift sentiment towards the sector. The government’s consultation certainly won’t help. Still, there needs to be a substantial change in the way these trusts are run, with a primary focus on the interests of shareholders. Only then can investors begin to trust NAVs are what managers say they are.

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The Scottish government has announced plans to sell up to £1.5 billion of its own debt over the next five years, the first time the country has issued its own bonds in more than three centuries. The “kilts”, as they will inevitably be known in a play on the British “gilts”, will help finance the devolved administration. The plans took a step forward last week when two of the major agencies, Moody’s and S&P, gave the planned issue an investment-grade rating. The Scottish National Party plans to press ahead, in part to give it more money to play with, but also, perhaps more importantly, to demonstrate that Scotland can flourish on its own and have credibility in the markets.

The trouble is, it is not likely to work out that way. The ratings agencies were quite clear that they were grading Scotland on the basis that it was still part of the United Kingdom, and the debt backed by the Bank of England and the Treasury in London. If Scotland were an independent country it would surely be a very different story.

To start with, Scotland runs a huge budget deficit. For 2024-2025 it rose from £21 billion to £26 billion. That is 11% of GDP, compared with 5.1% for the UK as a whole. If you took out oil, which might not all go to Scotland in a separation agreement with the rest of the UK, it would rise to a terrifying 14%. The rise was largely on account of lower revenues from North Sea oil and gas, but the SNP is fiercely opposed to the oil industry, and wants to close it down as quickly as possible, so the deficit would be a lot worse if the country became independent. Its deficit would rank as one of the highest in the developed world. It is behind Timor-Leste, at 48% of GDP, and Ukraine at 18%, if above Egypt and Zimbabwe. It is hard to believe that borrowing on that scale would be sustainable for very long.

Next, Scotland has a political class that is addicted to spending. Ever since the devolved government was created at the start of the century the one thing it has proved very good at is giving away free stuff. Higher education does not have to be paid for, and neither do prescriptions, or bus travel if you are under 22 or over 60. It makes politicians sound generous. Some of that is paid for with higher income-tax rates in Scotland than in the rest of the country, but most of it comes from subsidies from London. Public spending is already more than £2,000 per person higher in Scotland than in the rest of the UK, but the budget deficit is still huge. It is hard to see any government in Edinburgh changing that.

It's hard to think of anything worse than Scotland's proposed 'kilts'

Finally, Scotland may break away from the UK at some stage, and, if it does so, it may have to issue its own currency. The SNP has always maintained that it can carry on using the pound after independence, if it ever happens, and the Bank of England will remain the ultimate guarantor of its debts. But the government in Westminster has never agreed to it and neither has the Bank. It is hard to see why they ever would. Anyone holding a “kilt” has to reckon with the possibility that Scotland may have to issue its own currency at some stage and that it will sharply devalue against the pound. Measured in sterling, or indeed dollars or euros, they will face huge losses on their holdings.

In reality, it is hard to think of a worse investment. A market in “kilts” will make that painfully clear almost as soon as it is launched. It might start out trading at the same price as UK-issued gilts, but it will very quickly start to deviate from that. If a second referendum on independence is mooted, prices will plunge if there are polls showing a “yes” vote, which paradoxically, will make that outcome far less likely.

If there is a prospect of a vote being held, prices will start to sink as investors weigh the possibility that it might be a Treasury in Edinburgh rather than London that has to pay them back. Scottish politicians pushing for “kilts” might imagine it will strengthen the case for independence and bolster their financial credibility. More likely is that it will backfire spectacularly, making it clear that an independent Scotland would struggle to pay its bills.

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Questions about AI’s stock market dominance are being asked louder than ever. On 27 October, Wired published an article contending that “AI may not simply be ‘a bubble’ or even an enormous bubble. It may be the ultimate bubble.” The article included comments from Brent Goldfarb, co-author of Bubbles and Crashes: The Boom and Bust of Technological Innovation. Goldfarb said that the AI boom ticks every box he looks for in a technology-driven bubble: uncertainty over the ultimate end use, a focus on “pure play” companies, novice investor participation and a reliance on narrative.

As Edward Chancellor, financial journalist and former hedge-fund strategist, has pointed out in these pages, the AI bubble is also on shakier ground than many previous technology-driven bubbles, such as the dotcom bubble, the “Roaring Twenties” and the US railroad boom, all of which were followed by major economic depressions. It is also more speculative. Railways, cars and the internet were proven technologies in their bubble periods – the same cannot be said of self-teaching computers. The AI bubble is more “a multi-trillion-dollar experiment” to see if we can arrive at artificial general intelligence (AGI) – technology that successfully matches human levels of intelligence. If that experiment fails, we won’t have canals, railways or fibre-optic cables to show for it, but rather millions of obsolescing computer chips and dormant, debt-funded data centres.

AI as a field of research dates back at least to Alan Turing, and includes established fields such as machine learning and computer vision; generative AI is a newer subdivision that has taken shape over the last 15 years. It leapt to public attention – and brought the wider field along with it – with the launch of ChatGPT in November 2022. But it’s worth emphasising that if you are happy to buy Nvidia shares at current prices, you are effectively betting on the long-term profitability of generative (and its newer subset, “agentic”) AI, not the field as a whole. And even the bulls are nervous about the prospects for that. “AI... is driving trillions in spending over the next few years and thus will keep this tech bull market alive for at least another two years,” says Dan Ives, head of global technology research at Wedbush Securities. That is significant as Ives is one of the great tech bulls. If even he is implicitly conceding that the current bull market could end and suggesting a possible timeframe, it shows that doubt is creeping in.

The nature of the AI bubble

“This time it’s different” is regarded as one of the most dangerous phrases in investing, but it’s a refrain that AI’s proponents turn to increasingly frequently. The companies driving AI today, they say, are highly profitable, unlike the proliferation of profitless internet start-ups in the dotcom era. That holds true of Nvidia as well as the “hyperscalers” (Alphabet, Amazon and Microsoft), but none of these are profitable because of revenue generated by generative AI products. They were already highly profitable (and, for the most part, less capital-intensive) before the arrival of ChatGPT. No one denies there is money to be made selling computer chips or cloud computing. But AI is a different story.

Step back and look at generative AI firms in isolation, and the current set-up looks a lot like the dotcom bubble. Venture capital is flooding into speculative businesses that burn through cash with no credible plans to turn that into profit any time soon. James Mackintosh of The Wall Street Journal observes that the dotcom bubble kept inflating between 1995-2000 despite media references to the bubble increasing every year throughout this period. Bubbles can keep growing, even if everyone knows they’re bubbles.

A bubble usually bursts after encountering some form of pin. No one knows what that will be for AI, but a contender is an energy-driven inflation crisis. AI requires vast amounts of energy. Policymakers can make life as easy as possible for AI developers, but they can’t control energy prices. The more advanced AI models become and the more users they acquire, the more energy they are likely to consume. And there are signs that AI is already making energy more expensive for US consumers. Bank of America deposit data shows that average electricity and gas payments increased 3.6% year-on-year in the third quarter of this year. Whether or not energy-driven inflation reaches a point where it poses headaches for US politicians, it doesn’t take much imagination to see it quickly becoming a problem for AI developers themselves.

OpenAI’s CEO Sam Altman wants his firm to have 250 gigawatts (GW) of data-centre capacity by 2033. According to Bloomberg’s Liam Denning, that’s equivalent to about a third of peak demand on the US grid and more than four times all-time peak electricity demand for the state of California. Nvidia’s CEO Jensen Huang says 1GW of data-centre capacity costs $50 -billion - $60 billion to build (of which $35 billion or so goes on Nvidia’s chips), so building this could cost OpenAI north of $12 trillion. That simply it isn’t going to happen – certainly not in anything like the next eight years, at least – but the numbers show just how much energy AI’s biggest players are planning to consume.

Even with energy prices where they are, the economics are stretched thin for AI developers. OpenAI posted an operating loss of $7.8 billion in the first half of 2025, according to tech news site The Information. Annual recurring revenue is set to exceed $20 billion this year, but OpenAI’s own projections say it will not be cash flow positive until 2029, when it projects revenue of $125 billion. If the economics of scaling its capacity at pace ever start looking negative, then OpenAI’s semiconductor-spending binge could slow dramatically.

If you want an idea of how overblown the stock market’s reaction is to this binge, look no further than AMD (Nasdaq: AMD). On 6 October, OpenAI announced that it would buy up to 6GW of GPUs from AMD, which AMD executives estimated could net $100 billion in additional revenues once the ripple effects are factored in. Within two days of the announcement, AMD’s market capitalisation had increased by around $115 billion – more than the revenue the deal was expected to raise. That’s before getting into the fact that AMD will be paid for the GPUs not with money, but with its own stock.

Where are the benefits of AI?

Generative AI does at appear to be improving professional productivity. What data we currently have available from the US shows a trend of reasonably healthy GDP growth alongside subdued job creation, which Joseph Amato, president and chief investment officer at Neuberger, calls “an unusual combination that points to productivity doing more of the heavy lifting”. AI is expected to lift productivity in the US by 1.5% over the next ten years, and between 0.2%-1.3% across the G7. But Amato cautions that these gains are far from evenly distributed and that they pose risks of their own. “Lower-end white-collar roles – performing routine analysis or administrative tasks often filled by recent college graduates – face significant displacement risk,” he says. That has profound policy implications.

The AI revolution could eat itself. You can’t put an entire generation of the global middle class out of work without expecting substantial economic consequences; perhaps enough to negate all the potential GDP gains. There is evidence that this is already happening. Ron Hetrick, principal economist at workforce consulting firm Lightcast, observes that average real spending on retail goods compared with total employment has been stagnating ever since the housing bubble that led to the 2008 crash. Covid and the consequent stimuli disrupted this trend, but only temporarily: retail spend per employee is now falling again.

Hetrick calls AI “a jobs-destroying, money devouring technology” that threatens to accelerate this decline. As retail spending continues to fall, AI companies’ “large enterprise clients will also see their buyers stagnate”. If the world entered a recession, the core business pillars at Amazon, Google and Meta would take a major hit; advertising and e-commerce revenues are all ultimately reliant on a large crop of middle class consumers happily spending money. None of these companies has an AI division that is remotely profitable in its own right, let alone capable of supporting the wider business.

AI could deliver some genuinely world-changing social benefits, improved medical research being an obvious example. Google DeepMind’s AlphaFold is a program that can predict the structure of a protein based on the sequence of amino acids that comprise it, which has profound implications for the research of diseases and development of treatments.

But two things need to be remembered: firstly, this isn’t particularly new: DeepMind debuted AlphaFold in 2018, so its potential ought to have been priced in before ChatGPT came along. These kinds of techniques are also not generative AI – researchers at the top biotechs are not asking ChatGPT to come up with new amino acid sequences for them, because that’s not how large language models work. More pertinently for investors, it is not a given that the medical applications will be profitable.

How to hedge your bets with AI

How can investors hedge their bets given these trends? Judicious selection of energy stocks is one way to play the increasing demand for power that AI companies will drive over the coming years. But this window may already have passed: Vistra (NYSE: VST), for example, has gained 60% in the past 12 months and now trades at 22 times forward earnings – which is a reasonable price for a tech stock, but looks steep based on traditional valuations for utilities. That said, if it does turn out to be energy inflation that eventually bursts the AI bubble, then the suppliers ought to catch the tailwinds in the process. An investment trust with exposure to companies powering and building data centres, such as Pantheon Infrastructure (LSE: PINT), can offer exposure to data-centre energy suppliers.

Or you could look for undervalued AI plays. Certain semiconductor stocks, such Taiwan Semiconductor Manufacturing Company (NYSE: TSM), stand to continue benefitting from AI infrastructure spending for as long as it takes the bubble to burst, without the overblown valuations of the big US names.

Given TSMC’s effective monopoly on high-end chip manufacturing, it is well-placed to capitalise on whatever technological innovation might follow in AI’s wake if and when the bubble bursts.

Chris Beauchamp, chief market analyst at IG, suggests some traditional defensive plays in order to hedge portfolios, including gold, government bonds, defensive shares in sectors such as consumer staples and healthcare, and multi-asset funds. “Finally, with policy rates still elevated, holding cash-like assets is no longer punitive,” he says. “The key is diversification: no single hedge works in every scenario, but a combination can cushion portfolios if AI euphoria fades.”

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

“History is just one f**king thing after another,” declares a vulgar schoolboy in Alan Bennett’s play The History Boys. Surveying the past 25 years can feel the same way. From Iraq to the euro crisis and from Brexit to bitcoin, a great deal has happened over the quarter-century that MoneyWeek has graced newsstands. But not all news stories are created equal.

Hazarding a slightly more elegant periodisation than Bennett’s character, I would argue that the great turning point of the past quarter-century was the financial crisis that began in 2007. For the UK in particular, recent history can be neatly sliced into two periods: the years before and after the great crash.

London loses its crown

In the early 2000s, London could credibly claim to be the centre of global finance. It topped Z/Yen’s inaugural Global Financial Centres index (GFCI) in 2007.

America might be the superpower, the argument went, but London was the world’s capital. Britain’s economy was like the tennis at Wimbledon, a venue for global heavyweights to clash, helped by the English language and an excellent time zone.

The past is indeed a foreign country. Where once the “Sir Humphreys” in Whitehall talked of surpassing New York, today they tremble at unflattering comparisons to Greece. The London stock exchange fears irrelevance. Nvidia alone, valued at $5 trillion, dwarfs the combined value of all London’s blue chips. Deal volume has never regained its 2006 peak of $51 billion (it was just $248 million in the first nine months of this year).

While the technology megabucks fly on Wall Street, one of London’s most notable listings this year has been Princes Group, a purveyor of tinned tuna. It is a perfectly respectable business, but there is a certain desperation in efforts by officials to tout this solid, dull flotation as heralding some great renaissance.

Most tellingly, UK living standards have flatlined since 2007. “[Had the] pre-2007 productivity trend continued, British workers would be 16% more productive today,” says Aadya Bahl on an LSE blog. The significance of 2008 is much more evident in Britain than in America, where growth eventually recovered. The S&P 500 index of US stocks has rocketed nearly 900% since its 2009 low (compared with 153% for the FTSE 100). The UK had placed all of its chips on the wealth generated by the City.

When that bet imploded, the country struggled to carve out a new role for itself. Ever-Tiggerish, Americans bounced back from the banking disaster, reinventing themselves as shale-oil prospectors and smooth-talking tech venture capitalists; Britain has more resembled a middle-aged man bouncing between odd jobs after an involuntary redundancy.

Far too easy money

Gordon Brown’s hubristic claim to have abolished “boom and bust” was widely panned as the Great Recession got underway. But in this, the chancellor-turned-PM was only mirroring the wider economic establishment, where the notion of a “Great Moderation” (built on the supposed inflation-fighting genius of central bankers) was all the rage.

Central banks treated us to further financial wizardry after the subprime meltdown by unleashing ultra-low interest rates and the money-printing of quantitative easing (QE). More tranches were added whenever markets started to feel queasy. By the peak in 2021, the Bank of England’s QE portfolio had swollen to £895 billion, or 40% of UK GDP. Contrary to the worst fears, inflation did not immediately rocket. What happened was more insidious.

With credit all but free, risky behaviour went unchecked for years. On Wall Street, the era of ultra-low rates led to some truly daft companies and unworkable business models. The most notorious was WeWork, a poorly run office landlord that somehow convinced venture capitalists it was a ground-breaking tech innovator. Investors threw tens of billions at the idea before it filed for bankruptcy in 2023.

The impact on governments’ behaviour was even worse. Easy money anaesthetised bond markets, removing pressure on states to get spending in order. Although not openly admitted, this was by design. The hope was that cheap borrowing costs would prompt governments to borrow and spend more, thus ending the world economy’s post-crisis slump.

Governments binge on debt

It took a pandemic for the balance of global savings and borrowing to shift decisively. Anyone wondering why interest rates and inflation have spiked so violently of late need look no further than the world’s finance ministries. With furlough schemes, governments got out the credit card, treating tens of millions of workers to a year off. Then came the energy shock after Russia’s invasion of Ukraine in 2022, combined with a pressing need to find more money for defence and an ageing population.

The result has been an explosion in public borrowing. In 2000, UK public debt stood at 37.7%. Today it is 103%, with the Office for Budget Responsibility warning that on the current trajectory it will hit 270% of GDP by 2070. It’s a similar story in most of the developed world.

The mirror image of worsening government credit has been surging gold prices. The yellow metal started the year 2000 at $289 an ounce (oz). Today it trades at $4,035/oz. That 1,294% gain arguably makes it the trade of the century so far, far outstripping the S&P 500’s 365% return over the same period. MoneyWeek is a great fan of the yellow metal, but even we must admit that at current levels, vertigo is setting in.

Bitcoin fanatics will argue that theirs is the trade of the millennium. MoneyWeek has been cautious about embracing the highly volatile cryptocurrency. Claims that bitcoin is “digital gold” are suspect. Bitcoin tends to behave more like a risky asset, rising and falling together with frothy tech stocks, than it does a hedge.

Yet our scepticism is proving hard to maintain. Since its first boom in 2017, the digital currency has gone on to return over 500%. Modish “meme” coins can do even better. Investing is about growing and preserving pre-existing wealth, rather than making a fortune from nothing. Yet pick the right meme coin and you can become wealthy overnight. Still, a lottery ticket can also do that for you.

So much for peak oil

Gordon Brown’s talk of ending boom and bust is far from the only dubious prediction over the past 25 years. During the 2000s, looming “peak oil” was a persistent worry due to the depletion of existing reserves. Credible estimates predicted that production would peak sometime around the late 2000s, before plummeting. Oil prices did in fact rocket at the end of the decade, rising from $30 a barrel in April 2004 (when MoneyWeek suggested readers buy) to more than $140 a barrel in 2008 (shortly before it told readers to sell).

Yet peak oil was not to be. All of that talk of coming shortages only prompted capitalists to go out and find more. In the 2010s, Texan cowboys flooded world markets with shale. Today, peak production is thought to be likely to occur in the early 2030s.

Peak oil was overdone, but the warning that energy was set to become more scarce has proved accurate. As cheaper production sources were exhausted, more marginal reserves such as shale require a higher price point to be economical. At $64 a barrel, Brent crude prices trade at a level regarded as cheap by current standards. But that is still much higher than its $29 a barrel of November 2000.

Emerging markets diverge

MoneyWeek was launched just as emerging markets (EMs) were gathering steam. The first decade of the 2000s was a golden era for developing economies, as China entered the World Trade Organisation, and Asia and Russia recovered from financial crises. From January 2001 to the end of 2009, EM equities gained 200%, compared with a measly 4% in developed markets. The rise of EMs has remained a vital theme, but one that proved messier than expected.

For one thing, growth has had a frustrating tendency to fail to translate into equity gains. The EM index has returned a paltry 28% since the start of 2010. Leadership of the complex has narrowed as Brazil, Russia and South Africa variously stagnated.

Yet defying repeated predictions of an imminent “China crisis”, China has kept on growing, although the recent property bust is proving the most serious test yet. Many developing economies become trapped at the “middle-income” level, defined as GDP per capita of between $1,000 and $13,800. With GDP per head of $13,300 as of last year, China finds itself on the cusp of joining the world’s high-income economies.

Since Covid, the world’s second-largest economy has emerged as a global leader in electric cars and AI. This has not made for very exciting investment returns (the CSI 300 index is still 13% off the level it reached at the height of an investing mania in 2015). But as geopolitical facts go, none is more fundamental to the future than the Middle Kingdom’s growing power.

Don’t buy at the top

Other popular narratives today may also ultimately prove wide of the mark. Tech leaders in Silicon Valley are currently warning that automation could lead to a jobless future, while simultaneously worrying that low birth rates will starve the economy of working-age people. The future, they incoherently claim, is one of both mass unemployment and a chronic labour shortage. Both problems can’t be true at once.

What about Britain? Trying to be optimistic, one might argue that pessimism has reached such an extreme level that it won’t be very hard for growth to surprise on the upside. The FTSE 100 has returned a decent 75% over the last five years.

Yet its performance this century has been dire. Up 52% since MoneyWeek launched, the blue-chip index has given investors a measly annualised return of 1.75% over 25 years (generous dividends on top do soften the pain of sluggish capital growth, though). Measure from the 2003 low, and the index has returned 165%.

No country knows more about investing misery than Japan, one of MoneyWeek’s long-standing favourites. Last year, the Nikkei index regained its 1989 peak; it took 34 gruelling years. The Topix share index has returned 275% since 2013, when Shinzo Abe launched economic reforms, but getting there has involved a long and painful wait.

The investment industry is fond of reminding us that over the long-term stocks tend to deliver an attractive rate of return. Yet that is an average. As grinding returns in the UK and Japan have shown, if you buy near the top, your portfolio’s recovery time risks being counted in decades. Those currently going all-in on the US tech frenzy have been warned.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

After World War II, America and its allies put in place a set of alliances, institutions and power structures to rebuild war-ravaged countries, create geopolitical stability and generate global economic growth. This post-war order has endured – with one important change – for much of the following eight decades.

The fall of the Berlin Wall and the dissolution of the Soviet Union seemingly marked the end of any alternative to Western capitalism and liberal democracy as the main global economic system. However, in recent years, it has become increasingly obvious that the ties holding this US-dominated system together are fraying and are likely to break.

We are heading into a new world that is likely to be more unstable. In a symbol of this change, on 5 September this year, US president Donald Trump signed an executive order renaming the Department of Defence as the Department of War. This restores the name that it carried from 1789 until 1947 and points to the rising risks of conflict in the years ahead.

So how should investors position themselves for what comes next? What areas that are currently under-represented in most portfolios should they consider for diversification and protection?

Rivalry and conflict between the US and China

The main question is how the shift from a single superpower to two contending nations – the US and China – will affect global supply, demand and the efficiencies of comparative advantage. Free trade has generated huge gains since the end of the Second World War, and even more so since the end of the Cold War. This is now clearly under threat.

With the end of the post-war order comes the new “Great Game”. This name was originally given to the struggle between Britain and Russia for influence in Central Asia (Afghanistan and Persia). This time, the strategic rivalry and political conflict is between the US and China. Paradoxically, it is America that is now pursuing a more inward-looking strategy under Trump’s Make America Great Again (MAGA) banner, while China aims to build economic and political alliances through its Belt and Road (BRI) and Global Development Initiative (GDI) projects.

While America strives to bring its manufacturing base back onshore, Europe is now having to divert budgets from social welfare to rearmament. Both are now in stiff competition with China to electrify the planet and build digital infrastructures. This will inevitably lead to global competition for resources across energy, metals and critical minerals.

This is leading the two superpowers to weaponise their core strategic advantages. For America, this is the US dollar, still the world’s global reserve currency. For China, it is a stranglehold on rare earth elements and critical minerals.

China needs an alternative to the dollar

Freezing and confiscation of assets and denial of access to global payments systems is forcing non-US aligned countries to look for an alternative store of wealth and means of exchange. Herein lies the potential significance of the Brics+, the informal name for the original group of five key emerging-market powers – Brazil, Russia, India, China, South Africa – plus other countries that have begun joining them for summits and policy coordination. Some see this group as a counterpart to the G7 group of developed economies. Initiatives by the Brics+ members so far include work on a development bank, central-bank cooperation and an international payment messaging system.

Any alternative to the dollar looks increasingly likely to be a form of tokenised, asset-backed digital currency. This explains why many central banks closely aligned with the Brics+ nations have been large buyers of gold and other precious metals.

If the creation of a new currency system seems far-fetched, it is worth a quick review of the genesis of the post-war order: the Bretton Woods Agreement of 1944. China is a great student of history, and this agreement provides an template for how new world orders are created. While World War II was still raging, more than 700 delegates from 44 countries met at Bretton Woods in New Hampshire in the US to work on a new global monetary system. The goal was to create a globally efficient foreign exchange market, prevent competitive currency devaluations and promote global economic growth.

John Maynard Keynes, one of the principal economists at the meeting, proposed creating a new international reserve currency called the “bancor” and setting up a global central bank called the “Clearing Union”. However, these proposals were eventually watered down by the US Treasury in favour of a more prominent role for the US dollar, whereby the dollar would be pegged to the price of gold, and other participating currencies would be pegged to the dollar. The agreement was fully implemented in 1958, pegging the US dollar to gold at $35 per ounce.

This system functioned until the early 1970s when it became evident that US gold reserves were not adequate to sustain the peg. This caused a run on gold, forcing first a temporary suspension of the dollar’s convertibility into gold followed by complete collapse of the agreement in 1973. US president Richard Nixon also imposed a 10% tariff on all dutiable imports to force its major trading partners to adjust their currencies upwards and trade barriers downwards. Does this sound familiar?

China has already taken the strategic initiative to convene the Brics+ group of nations. It has established the Shanghai Gold Exchange – and associated physical storage – and now holds a significant percentage of its reserves in gold. It has shown little desire to replace the dollar with its own currency – internalisation of the renminbi would erode the ability to operate capital controls – but it and its allies need an alternative to the dollar.

Given China’s embrace of technology and advanced domestic digital-currency adoption, it does not feel far-fetched to envisage it launching a Bretton Woods-style gold-backed digital currency for those unable or unwilling to access the US dollar system. Crypto tokenisation is the vehicle, not the asset.

China's control of strategic resources

China’s strongest bargaining chip lies in its control of rare-earth elements (which are used in magnets, electrification, lasers and optical devices, catalysts and emission controls and radar/guidance systems), as well as critical minerals, that have broader energy, industrial and defence applications.

China has this control because, while the West focused on the comparative advantage of outsourcing its production to countries with lowest costs, China focused on building an end-to-end supply chain comprised of exploration, mining, refining and industrial manufacturing. With its looser environmental controls, it has come to dominate the global supply of these critical minerals.

In the tit-for-tat game of tariffs and sanctions, China is able to leverage its position in the one area where the US is completely vulnerable. So just as China and its allies have no alternative but to develop a competitor to the US dollar as a store of wealth and means of exchange, the US and Europe now see they have no choice but to develop alternative sources for mining and processing capacity to break this reliance. Exacerbating the situation, America’s prioritisation of its own MAGA agenda over historical alliances has left Europe and other previously US-aligned countries to build their own rather than collective resources.

If investors believe the post-war order is irretrievably compromised, they should consider investments that give exposure to these themes. Gold and precious metals for hard assets. Tokenisation and chips to enable digitalisation. Energy and power generation, rare earth elements and critical minerals, which will be in demand as both sides try to secure supply chains. And US and European defence stocks as the West joins in the new arms race.

Investors have many ways to access these ideas, including individual stocks, thematic exchange-traded funds (ETFs) or exchange-traded commodities (ETCs) that hold physical metals. Listed commodity futures and options are also becoming increasingly accessible, as major exchanges such as the Chicago Mercantile Exchange (CME) roll out mini and even micro contracts, which are 1/10 or 1/100 of the size of standard contracts and require less up-front capital. Such instruments are only suitable for experienced investors, but they offer a way to quickly add hedges or speculative positions to a portfolio – something that will become more valuable in a fast-changing world.

James Proudlock is managing director of OptionsDesk.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

It’s been a tough two decades for UK-listed firms. BP, Shell and HSBC have dropped out of the ranks of the world’s largest listed companies. Britain’s current largest firm, AstraZeneca, doesn’t even make the global top 40. At the same time, the reputation of British universities has gone in the opposite direction. “We now have more universities in the global top 10 than we had 20 years ago,” as Robin Bagchi, chairman of the London Technology Club, points out. UK universities “continue to punch well above their weight in terms of producing world-leading research”, which is an important economic asset, says James Witter, head of Sarasin Bread Street. More than 2,000 active start-ups have been spun out of UK universities. Little wonder that a sovereign-wealth investor has said that British academia is “our equivalent of Gulf oil”.

The cutting edge of the 'golden triangle' UK universities

Such economic excellence is built on a foundation of “incredible institutions that are focused on applying science and technology to solve fundamental problems”, says Ed Bussey, CEO of Oxford Science Enterprises. He puts Oxford University at the top of the list of such institutions, pointing to the fact that every year Oxford comes up as one of the leading research universities, with a history of more than 70 Nobel prizes in a wide range of disciplines. “When I go out to lunch, I’ll be standing in a queue and the person behind me will be a world leader in this, and then I’ll be walking back to the office and another will walk past me and they’re the Nobel winner in another area.”

Such a concentration of elite academics can help create an environment that ends up being worth more than the sum of the individual academics involved. Having a “cosmopolitan and multinational” atmosphere “attracts other great minds” – and a lot of investors willing to put money into early stage enterprises stemming from Oxford research. This in turn creates a “virtuous circle” where the quality of research attracts capital, which in turns encourages more talented academics to move to Oxford.

Andrew Williamson, managing partner of Cambridge Innovation Capital, emphasises Cambridge’s reputation and heritage as a major competitive advantage in attracting the best scientific talent. “We’ve existed for nearly 800 years, which means that we’ve been doing this for longer than almost anyone else in the entire world,” he says. It has leveraged its infrastructure and culture of “cutting-edge science” to create links between “the academic world, the start-up world and the biggest global technology companies”.

Oxford and Cambridge are not the only points of excellence in British academia. Commentators increasingly talk about the “golden triangle” of Oxford, Cambridge, and Imperial and UCL, rather than just “Oxbridge”. Indeed, as Bagchi notes, when it comes to science, technology, engineering and mathematics (STEM) subjects, “some recent rankings put Imperial College London near the very top of the global table, ahead of Oxford, Cambridge and Harvard”. University College London has also had a lot of success when it comes to creating interesting spin-outs – DeepMind is one example.

UK universities beyond the golden triangle

The golden triangle may be the most visible sign of British scientific excellence, but there is “some really great science coming out of the other UK universities” too, says Doug Quinn, partner at DSW Ventures. As Quinn’s colleague, Mira Androniciuc, notes, there are key specialised laboratories in other UK universities that outperform the general laboratories in the golden triangle institutions. “There are clearly opportunities out there.” But sadly, these are not yet producing a strong pipeline of new firms. There were around 600 early-stage investments in the golden triangle in 2024, but only 250 in other universities. The regions get around a fifth of the total investment that the golden triangle gets, says Quinn. But the gap is mainly due to inexperience and should narrow as the teams outside Oxbridge and London do more deals. Already, there have been more than 100 spin-outs from Manchester University, which now has a well-established technology transfer office.

Indeed, a “Northern arc” is starting to emerge as a serious challenge, led by the four universities of Liverpool, Leeds, Manchester and Sheffield, says Duncan Johnson, CEO of Northern Gritstone. Johnson notes that these four institutions alone employ around 16,500 researchers and have the UK’s largest research budget at around £770 million, which is bigger than those of Oxford, Cambridge and London. Northern Gritstone, which has first refusal on the commercial opportunities from research produced by the Northern arc, has been able to raise £362 million from individuals and institutions.

Henry Lane Fox, CEO of Founders Factory and chairman of the Creator Fund, singles out the University of Southampton as particularly strong when it comes to quantum and high-performance computing; the University of Glasgow as a leader in chemistry; and Edinburgh when it comes to robotics. Overall, around half of the deals that Lane Fox and his team evaluate, and around a third of those that they end up investing in, come from outside the golden triangle, "and both numbers are growing”.

Lane Fox is so enthusiastic about the quality of academic research in the UK as a whole that, in an attempt to grab the most interesting idea at an earlier stage than his competitors, his Creator Fund is now targeting doctoral students at universities across the UK. Similarly, Chris Wiles, Director of Private Equity and Venture Capital at Foresight Group, has set up a network of regional offices, including in Edinburgh, Leeds, Manchester, Cardiff and Exeter. Another source of world-leading research comes from the various research institutes that are funded by the UK government, but not affiliated with any specific university – the nuclear research facility at Culham Campus, for example, run by the UK Atomic Energy Authority (UKAEA), as well as the Harwell Science and Innovation Campus in Oxfordshire.

Rethinking commercialisation in UK universities

As well as producing some of the best research in the world, British universities are generally much better at turning their research into companies and products than they were even a few decades ago. “Every university around the world is on a journey when it comes to commercialisation,” says Williamson. Over the last 20 years, the UK government has made a particular effort to encourage universities to make commercialisation and “knowledge transfer” key to their mission. This began with universities setting up knowledge-transfer offices, principally focused on the licensing of technology. Over the past 10 to 20 years, that model has evolved and is now creating spin-out companies based on the technologies that the academics have created. Academics and students have become more entrepreneurial and “want to set up their own firms to commercialise their tech, rather than stay as academics and simply license it to third parties”.

Arnab Basu, founder and CEO of Kromek, which specialises in radiation-detection technology, agrees that things have changed for the better. When he set up Kromek two decades ago from research he pioneered at Durham University, “spin-outs were not the flavour of the day, and we had to do everything ourselves, from agreeing a licensing agreement with the university, to finding investors and then raising additional funds”. Today, the support system for entrepreneurs, in terms of both money and advice, is much more developed. Many smaller universities have also realised that forming partnerships with similar institutions is a good way to gain experience quickly.

There has been a change in attitude within academia over the past 15 years, says David Grimm, a partner at AlbionVC. Launching start-ups was previously seen as “a bit grubby and commercial”, but now founding a start-up has almost become a precondition for becoming a professor. The latest report into spin-outs, produced in conjunction with analytics firm Beauhurst, reveals that investment in UK spin-outs reached the record level of £3.35 billion in 2024. This compares with £1.16 billion in 2019, as Moray Wright of Parkwalk Advisors points out.

Lowering the “university tax”

But just because UK universities have upped their game doesn’t mean that there isn’t plenty of room for further improvement. MoneyWeek spoke to several venture capitalists, and nearly all of them pointed to universities’ desire to cling on to as much of the company spun out as possible as a big problem. It is, of course, reasonable for institutions to try to get the best return for what is, after all, their intellectual property, says James Paton-Philip, partner in the corporate team at law firm Hill Dickinson, but too often this “university tax” can make investing unattractive for investors and for those founding the company in the first place, especially given that the founders’ stake will end up being diluted further as they raise more cash.

Universities do have a tendency to be too aggressive in negotiations, agrees Grimm, and to take too long to reach an agreement, which can be a major problem in the fast-moving world of technology, where multiple firms are trying to bring similar products to market first. “I’ve known of several major cases where ideas for start-ups have failed on the launch pad because the negotiations got so involved that by the time they were settled the opportunity had passed.”

The good news is that this is becoming much less of an issue thanks to pressure from the government to reduce the share institutions demand and to standardise terms. The 2023 Independent Review of University Spin-outs has helped speed up the process, says Grimm. AlbionVC has, for example, an agreement with UCL where the university agreed to take just a flat 5% stake in any software start-up spun out of it. The first company AlbionVC spun out under the new conditions took much less time to set up. UCL isn’t the only university to do this, says Bagchi. Imperial now takes a flat 10% share from its spin-outs, and Oxford has reduced its share by more than half from 50% to 20%.

The British Microsoft is coming

The UK may be “world class at research, and very good at creating early stage companies, but there is still room for improvement when it comes to scaling up”, says Greg Smith, CEO of IP Group. Northern Gritstone’s Johnson agrees that our tech sector still “struggles” when it comes to raising large sums for expansion. From his own experience, he’s found that raising amounts in the region of £200 million is still a big ask for British tech firms, whereas those in Silicon Valley can raise such sums with a single phone call.

The lack of domestic capital willing to back tech firms means that too often UK start-ups are either forced to rely on overseas investors, or sell themselves to larger US tech companies, says Wright. He emphasises that such investment represents a vote of confidence in the capabilities of the UK research base, but such external investors and larger tech companies also “have their own agendas, which don’t necessarily align with the interests of the UK”. He points to DeepMind, the AI company spun out from UCL that was acquired by Google in 2014 for £400 million, and which “would now be worth more than £10 billion – maybe even more than £100 billion – if it had remained private”.

Google’s purchase of DeepMind may have deprived Britain of its very own OpenAI. Yet the fact that it, and others, such as OrganOx and Oxford Ionics, have fetched “significant sums” will “undoubtedly draw more interest into this area, and encourage more university researchers to launch commercial enterprises”, says Sarasin’s James Witter.

Such successes are also helping to build the necessary environment in the UK “of investors, lawyers and financial services intermediaries”. So, provided pension funds and institutions are willing to invest more, “there’s no reason” why we can’t build a British tech company on the scale of Microsoft, says Paton-Philip. Smith believes “unequivocally” that several large British tech firms will emerge within the next decade. We look at some of the most promising places to put your money below.

Spin-outs from UK universities: where to invest

Companies such as Oxford Capital, Parkwalk Advisors, Foresight Group and AlbionVC all offer investors with deep pockets access to venture-capital trusts. Those of more modest means might like to consider IP Group (LSE: IPO), a listed FTSE 250 company that has been investing in spin-outs from UK universities for the last 25 years. Over this time, it has supported around 500 companies, creating an estimated 10,000 jobs. At the moment, the group has 62 firms in its portfolio, spanning “deep technology”, life sciences and clean-energy technology (cleantech). The stock trades at only seven times estimated 2026 earnings and at a sharp discount to the book value of its assets.

One of IP Group’s most successful clean-technology investments was in fuel-cell and hydrogen-power technology company Ceres Power (LSE: CWR). Originally spun out of Imperial College London, IP Group stepped in to rescue the company after a failed trial, taking an active role in its management before eventually selling its stake for a large profit in 2020. Ceres Power is not currently making any money, but it continues to grow, with sales tripling between 2019 and 2024, and it is expected to be a big winner from the spike in demand for clean energy created by the data-centre boom.

One of Cambridge Innovation Capital’s many success stories is Bicycle Therapeutics (Nasdaq: BCYC). It was founded in 2009 by Cambridge Enterprises (Cambridge’s commercialisation body) and uses technology developed by Greg Winter, winner of the Nobel Prize for chemistry in 2018, to develop drugs that can target and treat solid tumours that cannot be reached by conventional drugs. It is not making any money yet, but has several promising drugs in development. The most advanced of these is zelenectide, which is in advanced trials as a treatment for metastatic urothelial cancer (the hope is that it will also prove effective in treating other cancers).

Autolus (Nasdaq: AUTL) was founded by Martin Pule, who leads the “CAR-T” research programme at UCL’s Cancer Institute, with the help of UCLB (UCL’s commercialisation arm). Its products modify white blood cells to help the body’s immune system fight cancer. The company is not making any money, but its therapy Aucatzyl has recently been approved for use in the UK, US and EU for treating acute lymphoblastic leukaemia, with the hope that this can pave the way for similar treatments being approved for a wider range of cancers in the near future.

As noted in the main story above, Kromek Group (Aim: KMK) was originally spun out of Durham University by Arnab Basu. The company specialises in making radiation detectors that use cadmium zinc telluride (CZT) semiconductors for use in medicine and security. The company has already secured contracts with GE, Siemens, Philips and Canon, and with the help of funding from the US and UK governments, it is developing devices to detect biological pathogens. The stock trades at 18 times expected 2026 earnings. With revenue more than doubling between 2020 and 2025, that looks like good value.

Investors with an extremely high tolerance for risk might want to consider micro-cap Quantum Base Holdings (Aim: QUBE). It was founded by Robert Young of Lancaster University and uses quantum technology to produce product codes that are virtually impossible to counterfeit. With counterfeiting being a significant problem for global brands, the commercial potential seems huge, although the company is currently losing money.

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Federated Hermes Sustainable Global Equity invests across a diverse mix of growth, quality, and value companies, and across developed and emerging markets. It seeks out firms whose products, operations and activities contribute towards a more sustainable future. These companies are well placed to benefit from structural sustainability trends that are reshaping industries.

One such trend is electrification, a powerful yet often overlooked investment theme. As industries shift from fossil fuels to electricity, demand is accelerating, unlocking exciting investment opportunities in areas ranging from transport and heating to mining and steelmaking. Importantly, electrification represents one of the easiest and most cost-effective ways to enhance energy efficiency and reduce emissions – especially when powered by renewables.

Thanks to decades of innovation, the cost of core components such as batteries and power electronics has fallen by 99% since 1990. This has transformed the economics of electrification and accelerated adoption. This is just the beginning. Continued innovation will drive stronger returns and broader uptake, and the most compelling opportunities lie with companies enabling the transition: delivering the means to power an electrified future.

Three stocks to watch in electrification

Taiwan Semiconductor Manufacturing Company (Taipei: 2330) supplies 90% of advanced chips globally and is a critical partner to technology giants such as Apple and Nvidia. Its cutting-edge innovations deliver the enhanced performance and reduced power consumption vital to compact electrified systems.

The firm’s technological superiority and scale position it to benefit from rising demand across sectors. Exposure to electrification, supported by its diversified customer base and sustainability-driven innovation, boosts TSMC’s growth prospects. The Industrial Technology Research Institute estimates that by 2030, each TSMC chip will save the world nearly seven times the energy needed to produce it.

Trane Technologies (NYSE: TT) is a global leader in heating, ventilation and air-conditioning systems, with a strong focus on electrifying building infrastructure. Trane’s systems cut energy costs, improve comfort and help meet emissions regulations, significantly reducing energy use in existing buildings. Heating and cooling comprise 40% of a building’s energy consumption, making Trane’s impact especially significant. Its thermal management systems are between three and five times more efficient than conventional solutions, making up for the higher upfront cost of their units. The company’s service and controls business provides recurring revenue and strengthens relationships with customers.

Schneider Electric (Paris: SU) is a global leader in the digital transformation of energy management and automation. Its platform provides an integrated, hardware, software and services solution enabling electrification across buildings, data centres, industry and infrastructure, cutting emissions and energy costs.

Schneider worked on JPMorgan’s new headquarters in New York, Manhattan’s largest all-electric skyscraper, which is expected to achieve net-zero operational emissions powered by renewables. The firm’s effective strategy and positioning in a market with high barriers to entry has fuelled strong returns for shareholders and consistent dividend growth.

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It was possibly the worst news the industry could have received. Last week, the EU set out plans to cut the amount of steel it allows to be imported into member countries by half and impose tariffs of 50% on top of anything above that. With US president Donald Trump imposing steep levies on imports into the US, the EU is worried that manufacturers will start dumping excess production in Europe instead. It may well have a point. After all, there are not many other places it can go, and production can’t be wound down very quickly. Almost 300,000 people still work in Europe’s steel industry, with an estimated 2.5 million jobs dependent on its supply chain, and it can hardly afford to give those up. Tariffs are an obvious response.

That will hit British manufacturers harder than anyone. The EU is the largest market for steel made in the UK, with exports worth £3 billion a year. And it was not as if the industry was in great shape to begin with. Even with the trade deal that was agreed with Trump over the summer, the industry is still likely to face tariffs in the US after the government failed to reach a deal to exempt it. And it has been struggling with the highest industrial electricity prices in the developed world. Power in the UK is now twice the price of that in France and four times the price in the US. Given that energy can account for up to 40% of the costs of a steel plant, that has made British producers hopelessly uncompetitive on global markets. Add in higher wage costs, land prices and taxes, and it is very hard for most plants to compete. An extra 50% tariff in the EU will surely make it impossible. Exports will inevitably dwindle away to nothing.

It’s net zero or British steel, not both

Over the next few weeks, we can expect ministers to scramble around looking for a solution. They may offer big concessions to the EU to avoid the tariffs, such as conceding a youth mobility scheme. But that will just create problems elsewhere. British university and school leavers are already facing a huge shortage of jobs and it is hard to see how more competition from the EU will help that; or it could offer yet another round of subsidies and state aid. Almost half of steel production is now effectively controlled by the state. But the government is already strapped for cash and hardly in a position to offer open-ended subsidies to the steel industry.

Right now, the government is stumbling towards a half-hearted nationalisation. It has already taken control of British Steel, with a plant in Scunthorpe, earlier this year, while Liberty Steel, with plants in Rotherham and Stocksbridge, collapsed into government control last month. The plan, apparently, is to keep them alive while the government looks for a buyer, but there don’t seem to be any takers, and the tariffs from the EU make it unlikely any will emerge now. Half the industry has already been effectively nationalised, and the other half may not be far behind.

It is time for the government to make a grown-up decision. The steel industry should be closed down. It has been getting less and less competitive for years. It will soon be locked out of both the US and European markets by tariffs. The domestic market is not big enough to support it by itself, and with the accelerating deindustrialisation of the economy, it is getting smaller all the time. The unions and Labour MPs will demand subsidies to keep the industry and jobs alive. That would be a huge mistake. It will prove to be a waste of money that could be better spent elsewhere. Perhaps more importantly, closing down the steel industry will force the country to face up to the fact that successive governments have destroyed the industrial base through green regulations and soaring energy costs.

That would make the UK the first major developed country without any form of capacity to manufacture steel. And that will be a huge strategic weakness. But there is no point pretending the UK can still be an industrial power while also leading the world on hitting net zero. The country will have to make a choice. The steel industry can’t stagger on in its current form and we can’t afford the subsidies. It would be better to let it fade away and focus instead on those industries that can still be saved.

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There may be few things that UK prime minister Keir Starmer and US president Donald Trump agree upon, but one of them is the benefits of nuclear power. The centrepiece of Trump’s recent state visit to the UK was a series of agreements to “accelerate the build-out of new nuclear-power stations and support billions in private investment into the technology”, as Jean-Hugues de Lamaze, manager of Ecofin Global Utilities and Infrastructure Trust, puts it. With the rise of AI leading to what Tancrede Fulop, a senior equity analyst for Morningstar, calls “a growth in energy consumption not seen for decades”, they are not the only enthusiasts.

The debate over energy policy has changed dramatically in recent years. “For the last two decades, we’ve been talking about transitioning from a certain set of fossil fuels to cleaner technologies,” says Mobeen Tahir, director of research at WisdomTree. But in the past few years we’ve come to realise that at the same time we also need to “increase the amount of energy we produce to deal with the demands of the digital economy”. The problem is that these two goals seem contradictory. Renewable energy may be environmentally friendly, but it is not as reliable – wind power and solar energy only generate electricity when the wind is blowing or the sun is shining.

Traditional fossil fuels generate power as and when needed, but they are polluting and causing climate change. The solution is nuclear power, which provides the best of both worlds – “addressing the intermittency issues of renewables without compromising on the environmental credentials”, says Tahir. He argues that you can even make the case that nuclear power is more environmentally friendly than most renewables as a nuclear-power plant produces more energy per square foot, which means that you also use much less land.

Nuclear power is also by some measures more economic than most fossil fuels. The fixed costs of building a nuclear reactor are substantial, says Greg Eckel, portfolio manager of Canadian General Investments, but once the reactor is up and going, “it is probably the cheapest form of energy on an ongoing basis”. Eckel reckons that the most likely scenario for the future of energy is now one where nuclear does the bulk of the work, “allowing other renewable sources of energy to just fill in the gaps”.

Nuclear power and Big Tech’s thirst for energy

The need for a clean, stable source of power is particularly pressing in the technology sector, where the AI revolution has led to an explosion in the number of power-hungry data centres, says Tyler Rosenlicht, portfolio manager for global listed infrastructure at Cohen & Steers. And as well as requiring a huge amount of additional energy, the centres also require a high degree of reliability. After all, if you are a technology executive “the last thing you would want would be for your data centres to shut down suddenly because the power supply either cuts out, or starts fluctuating”.

Indeed, as Rosenlicht points out, the tech companies are so eager for the sort of “tried and tested” energy that nuclear power can provide that they aren’t waiting for new plants to be built, but doing deals directly with nuclear-power companies. Sometimes the aim is to prolong the life of power plants due to expire. In other cases, tech companies have underwritten the cost of building new reactors, either through upfront payments or by agreeing long-term contracts. Both of these are important as the need to make a large capital investment for an uncertain future has always been one of the barriers holding back the spread of the technology.

Pretty much all the major companies, such as Amazon, Apple and Meta, have made at least some long-term agreements with nuclear power, with Amazon and Alphabet (Google’s parent company) striking several deals last year. This isn’t a one-way street either – tech company Palantir has said that it plans to use its expertise to develop AI software aimed at accelerating the development of nuclear reactors, “which is exactly the sort of support that we need to make the whole industry more efficient and exciting”.

Of all the deals between tech companies and nuclear utilities, the most symbolic is Microsoft’s with Constellation Energy to reopen Three Mile Island, which shut in 2019. It could be back up and running as soon as 2027 and provide energy for Microsoft’s data centres for the next two decades. It’s symbolic because Three Mile Island was the site of a radiation leak in 1979, just 12 days after the release of The China Syndrome, a film about a fictional nuclear meltdown. That “created a lot of negativity about nuclear power in the mind of the public”, as Tahir says. Three Mile Island’s reopening may be a turning point.

Changing attitudes to nuclear power

The impact of Three Mile Island (as in the case of Fukushima later) was widely exaggerated and features more strongly in the public mind than nuclear power’s stellar safety record. “The facts on the ground have always been on the side of the industry, but these facts have taken a long time to be accepted by the wider public,” says Marco Visscher, author of The Power of Nuclear: The Rise, Fall and Return of Our Mightiest Energy Source. Now, however, he senses that the war in Ukraine and the failure of climate policy has forced the public and policymakers to be more pragmatic.

Visscher points to opinion surveys showing that “across the world, more people are in favour of nuclear power than oppose it”. In the United States, for example, polls show that 57% of people want more nuclear power, up from 43% just three years ago. Similarly, support for nuclear power in the Netherlands has gone up by half in the space of a few years; 85% of those in Belgium now oppose the planned decision to phase out nuclear power and want to keep it. Support for nuclear power is also high in the UK, with three people supporting nuclear power for every one who opposes it.

Government policy is starting to follow suit. As well as the recent agreement between the US and UK, several European countries, which “had historically been unfavourable to nuclear technology, are now thinking about reversing this opposition”, says de Lamaze. He notes that Italy’s Council of Ministers approved a draft law in early 2025 to reintroduce nuclear power nearly 40 years after it was effectively banned following a nationwide vote in 1987.

Joachim Klement, head of Strategy at Panmure Liberum, notes that many countries around the world are removing restrictions on nuclear power. This includes Japan, which is now starting to reopen the plants mothballed following the Fukushima disaster. Germany may be about to follow suit. Chancellor Friedrich Merz has agreed to allow nuclear power to be treated as a renewable sources of energy on an EU level and is considering reversing Angela Merkel’s infamous shutdown of Germany’s nuclear sector.

Many Asian countries are also thinking about beginning their own civil nuclear programmes from scratch, says Klement. Indonesia is one example, as is Malaysia, which is “hoping that nuclear power can help it fulfil its dreams of becoming Asia’s data-centre hub”, says Klement. Malaysia has already agreed contracts with international companies to start developing reactors. South Korea and India, which are already big investors in nuclear power, are also ramping up their efforts to increase production.

The rise of small modular reactors

There is a wave of optimism regarding the emerging technology of small modular reactors (SMRs). As Klement explains, their small size – they have a typical output of around 300 MW-400 MW, compared with 3GW for a large reactor such as Sizewell C – means they obviously take up much less physical space. This, in turn, means “you can locate them right next to an industrial park or major data centre” and also use the heat they create for other industrial purposes. They can also be up and running much sooner than a power plant, which can take as long as a decade to build, says Fulop.

The vision of a “tennis-court-sized nuclear reactor that is hooked up to a data centre and feeding it clean, stable, predictable energy all day every day” has the potential to transform the nuclear industry, says Rosenlicht. He emphasises that, although this might sound like science-fiction, there’s no question that the underlying technology is “viable”. Indeed, a form of SMR has been in use for decades to power nuclear submarines.

With the technology viable, the key remaining question is cost – and SMRs are still “extremely expensive”, says Rosenlicht. Still, the recent surge in SMR-related investment may help solve this problem by starting to make them more cost-effective. Rosenlicht expects SMRs to become competitive with conventional reactors sometime between 2030 and 2035. This may seem to be a bit longer than you might expect given some of the rhetoric around the technology, but “it’s not that long when you consider that the increased demand for from AI and other technologies is a long-term trend that is not going away”.

Indeed, in the very long run, small modular reactors could end up being much cheaper than conventional reactors. Their small size means they could be built into a factory much like a jet engine is built into a aeroplane rather than having to be assembled onsite, says Klement. He notes that past experience in other industries, such as aerospace, suggests that “while the first ones to be produced will be extremely expensive, the cost to produce each additional SMR will quickly plummet as the companies making them learn from their mistakes”. Once SMRs are up and running, they could end up producing electricity for a third or less of the cost of larger reactors.

Potential winners from the nuclear summer

So, who are going to be the big winners from this nuclear summer? Perhaps the most obvious group of companies to benefit will be those that mine the uranium that is needed to power these nuclear plants. John Ciampaglia, CEO of Sprott Asset Management and partner with HANetf for the Sprott Uranium Miners UCITS exchange-traded fund, notes that the current fleet of nuclear-power plants require a total of around 180 million pounds of uranium. Current production of uranium is only 150 million pounds. Even now, we are in a supply deficit as the increase in the uranium supply has been slower than expected.

Ciampaglia thinks the current gap between demand and supply could increase even further. Worldwide demand for uranium is expected almost to double to between 300 million and 350 million pounds over the next 15 years as countries “expand capacity through new builds, life extensions of shuttered plants and restarts of shuttered facilities”. There are signs that investors are starting to allocate more money in an attempt to close the gap, but the mismatch means that uranium miners and the companies developing new mines are “well positioned” to get a good price for the uranium that they extract for some time to come.

The miners aren’t the only companies who stand to do well from the revival of interest in nuclear power. Tahir reckons that all parts of what he calls the “nuclear value chain” will benefit. This includes the “midstream companies, which do things such as converting raw uranium into something that can be used to carry out the nuclear reactions that produce energy”. Other midstream tasks include storage, building nuclear reactor, as well as providing services such as maintenance, safety checks and even the decommissioning of plants that have reached the end of their useful life.

The aspect of the nuclear supply chain that investors are most interested in, however, is the companies that Tahir calls the “innovators” – the firms that are developing the new technologies that will transform the industry. Many of them are not generating revenue yet, but Tahir thinks they are worth investing in as they “have a huge amount of potential growth ahead of them”. As well as the companies involved in small modular reactors, there are other interesting technologies, such as attempts to recycle the uranium used in the process (at the moment, only 5% of the nuclear fuel actually gets used in energy generation).

The best plays in the nuclear sector

One way to invest in the nuclear sector is through an exchange-traded fund such as VanEck Uranium and Nuclear Technologies ETF (LSE: NUCL). This holds 25 companies, mostly from the US, Canada and Japan, including uranium miners, companies designing nuclear reactors (both large-scale and small modular reactors) and utilities. Its largest holdings include firms such as exploration company NexGen Energy and small modular reactor developer NuScale Power, as well as companies such as Cameco and Oklo (see below). The fund has an average price/earnings ratio of 26 and a total expense ratio (TER) of 0.56%.

As the name suggests, the Sprott Uranium Miners ETF (LSE: URNM) focuses on 35 companies that mine uranium. Its TER is 0.85%.

Cameco (Toronto: CCO) is the second-largest uranium miner in the world. Greg Eckel of Canadian General Investments is particularly impressed that Cameco “has learned to anticipate supply and demand and adjust production in light of how the market is evolving”. He also likes the fact that the company has broadened into other parts of the supply chain, owning nearly half of Westinghouse, for example, “which does the full cycle of designing, building, maintaining and decommissioning nuclear reactors”. Cameco trades at an aggressive 55 times 2026 earnings, but this is justified by the fact that revenue has more than doubled since 2021.

A purer play on the development of advanced nuclear technology is Oklo (NYSE: OKLO). As stated in the main story above, WisdomTree’s Mobeen Tahir likes Oklo, as it is one of the leading companies involved in the development of small modular reactors. Its first is planned for 2027. It is also finding ways to recycle nuclear waste. Oklo is a slightly riskier investment as it is currently losing money, but there is plenty of cash on hand to tide it over until profitability is reached in the next couple of years.

Another leader in the development of small modular reactors is Rolls-Royce Holdings (LSE: RR). The company is currently best known for its engines and defence products. The UK government (among others) has selected Rolls-Royce as one of its preferred partners to develop small modular nuclear reactors over the next decade. It trades at 36 times 2026 earnings, but this is more than justified by its rapid turnaround in recent years and its growth potential.

Few utilities specialise solely in nuclear power, as Morningstar’s Tancrede Fulop points out. Korea Electric Power Corp (Seoul: 052690), for example, uses gas and coal to generate power and is known across the world for its expertise, but it also uses nuclear power to generate electricity, and builds and designs nuclear-power plants around the world. As well as projects in the US, it is behind plans to build the first new reactor in Japan since the Fukushima disaster. Trading at less than four times current earnings, it is available to Western investors via depositary receipts traded on the New York Stock Exchange (NYSE: KEP).

Another utility that Fulop likes, and which is located a little closer to home, is Centrica (LSE: CNA). At the moment, it makes around 20% of its operating profit from nuclear power, including a 15% stake in the Sizewell C nuclear power station that is being built in Suffolk. This should increase as it has agreed to invest in 12 new nuclear-power plants that X-Energy is planning to build in Hartlepool. Centrica trades at 11.4 times 2026 earnings, with a dividend yield of 3.6%.

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Manulife CQS New City High Yield Fund (LSE: NCYF) aims to provide investors with a high gross dividend yield (currently 8.8%) and the potential for capital growth by investing mainly in undervalued, high-yielding fixed-interest securities. Around 87% of the portfolio is in fixed-interest securities, with 13% in equities (there is a 20% limit on equity exposure). With respect to currencies, 69% of the portfolio is in sterling, 18% in US dollars and 13% in euros.

As one of the smaller fixed-income funds, NCYF can participate in highly attractive small corporate-bond issues, which are often inaccessible to larger funds owing to their minimum-size requirements. The manager’s prudent risk-management focus has resulted in only three defaults since the fund’s inception in 2007 and enabled NCYF to increase the dividend every year for 18 years.

Three overlooked companies to consider

The largest holding is Shawbrook Group 12.103% Perpetual. Shawbrook is a challenger bank offering lending and savings services for commercial (real-estate and smaller companies) and retail (mortgage- and consumer-finance) customers. It is highly profitable, and its organic growth has been boosted by acquisitions in areas such as vehicle finance and smaller-company lending. Its Common Equity Tier 1 ratio (a gauge of a bank’s core capital adequacy) hovers around a comfortable 13% (3% is the minimum requirement).

The balance sheet and loan book have more than doubled in the last five years to £20 billion and £17 billion respectively. As is true of most challenger or specialist lenders, underwriting at Shawbrook is often manual, reflected in robust net-interest margins of 400 basis points, and a moderate cost of risk of 40 basis points.

The funding side is driven by retail savings, mostly fixed-rate and term, and 90% of the £16.7bn of retail-savings deposits are small enough to be insured by the Financial Services Compensation Scheme. The bank’s lack of coverage by equity analysts and infrequent smaller bond deals means it is often overlooked.

Consider also Stonegate 10.75% 2029. The firm operates a network of pubs, clubs and bars. It is a large player in a fragmented market with a market share of 10%; a supportive sponsor, as demonstrated by its last £250 million equity injection; good asset coverage, with £3.2 billion of real estate; and an improved financial profile. Although Stonegate still faces headwinds and the environment remains volatile, the company is advancing on its initiatives to optimise its assets through the conversion of pubs, disposals, and reducing the number of late-night venues.

There is also a focus on bolstering its appeal to customers, price increases with limited volume elasticity, and cost control. All these factors should lead to an improved free cash-flow profile. The group has no near-term maturities, while liquidity remains adequate. We believe that at 10.75% the bonds remain attractive.

Frontline (NYSE: FRO), the largest equity holding, is a world-leading shipping group transporting crude oil and refined products with a modern, energy-efficient fleet of tankers. Frontline is a beneficiary of sanctions against Russia and Indian refiners shifting some of their imports into the compliant market.

Should the war in Ukraine end, any exports of Russian crude would need compliant, insurable ships rather than the uninsured dark fleet currently used. We are also seeing a major increase in exports from West Africa to Asia, a highly profitable route for shippers. The high payout ratio makes this stock attractive for income investors.

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The investment-trust structure was conceived in the mid-1800s to fill a gap in the market for a low-cost, mass-market investment vehicle. One of the first was Foreign & Colonial, founded by City of London financier Philip Rose. The entrepreneur had a revolutionary goal: to provide the “investor of moderate means the same advantages as the large capitalist”.

In the 1800s, investing was largely the preserve of the wealthy, with limited options available to the smaller investor. Foreign & Colonial pooled investors’ money and invested it in a diversified portfolio, spreading risk across a basket of assets.

The closed-ended structure, which provided a stable pool of long-term capital, made these investment companies ideal vehicles for financing the expansion of the British Empire and the rapid industrialisation of the Americas. As global investment markets grew and diversified, the range of investment options available to investors with investment trusts expanded, and the range of trusts available also expanded.

Investment trusts have a fixed capital base

Investment trusts are structured as companies. They issue a set number of shares at the time of their flotation, and this forms a fixed capital base. Investors are then free to buy and sell the shares on an exchange. As the shares are freely traded and the asset base is fixed, trusts can trade at a premium or a discount to their underlying net asset value (NAV).

Open-ended vehicles, such as exchange-traded funds (ETFs), unit trusts and open-ended investment companies (Oeics) issue or eliminate excess shares at the end of each day to ensure the NAV and the share price match. This means there’s no room for a discount or premium to emerge.

This also means the capital base can shrink dramatically if the number of sellers consistently exceeds the number of buyers (and the price of shares in the fund falls). As the capital base shrinks, the vehicle has to continue selling assets to fund investment outflows. If those assets are challenging to sell, this can lead to a liquidity crunch. That’s why investment trusts tend to be the best vehicle for holding illiquid assets. They have no obligation to sell the assets, no matter how wide the discount to underlying NAV may become.

Some of the biggest trusts in illiquid sectors are the infrastructure trusts 3i Infrastructure (LSE: 3IN), Greencoat UK Wind (LSE: UKW) and the Renewables Infrastructure Group (LSE: TRIG). All of these trusts own portfolios of illiquid infrastructure assets, which generate steady inflation-linked cash flows.

Infrastructure isn’t the only asset class that lends itself well to the investment-trust structure. Trusts are ideally suited to owning portfolios of mixed assets, such as bonds, gold and stakes in hedge funds or private-equity investment funds. BH Macro (LSE: BHMU) has a position in the global macro hedge fund Brevan Howard, giving investors access to a fund that would otherwise be unavailable.

HarbourVest Global Private Equity (LSE: HVPE) is just one investment trust in the private-equity sector, offering investors exposure to this asset class via the trust structure. RIT Capital (LSE: RIT) and Caledonia (LSE: CLDN) are two examples of trusts making the most of the flexibility offered by the structure. Both are majority-owned by their founding families and own a broad portfolio of assets, from private-equity holdings to direct investments in other companies and portfolios of equities.

The structure of the investment trust also lends itself well to borrowing money. Investment trusts that specialise in acquiring illiquid assets – such as wind farms, property and infrastructure assets – can borrow against those assets to increase growth and build the asset base. These companies can also borrow to invest in equities. Borrowing money to invest in shares can be risky, but trusts can often mitigate some of the risk by issuing long-term fixed bonds.

For example, Scottish American (LSE: SAIN) issued £95 million of long-term debt between 2021 and 2022 with a blended interest rate of under 3%, maturing between 2036 and 2049. The trust, which owns a portfolio of equities, as well as property and infrastructure via other investment trusts, used the cash to reinvest into the portfolio.

The ability to borrow money is particularly helpful for the real-estate investment trust (Reit) segment of the market. Reits are a version of the typical investment trust, but with tax benefits when the majority of the portfolio is deployed into property. Companies like Supermarket Income (LSE: SUPR) and PHP (LSE: PHP) have leveraged this structure to build property portfolios designed around supermarkets and healthcare facilities, respectively.

MoneyWeek has always preferred investment trusts to open-ended funds for the above reasons – and the fact that they have historically outperformed other actively managed, open-ended funds. However, this has started to change in recent years. Investment trusts, particularly in equities, have struggled to keep up with the performance of other funds. As a result, investors have drifted away, and discounts to NAVs have risen sharply.

But there’s still a place for trusts within investors’ portfolios. Thanks to the structure of trusts, they are invaluable to build exposure to specific themes such as small caps, emerging markets, property and infrastructure. There are virtually no mass-market alternatives to the infrastructure offering, and trusts such as BH Macro, RIT and Capital Gearing (LSE: CGT) offer the sort of portfolio diversification that just can’t be found elsewhere.

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It looks set to be another difficult month for what remains of Britain’s industrial base. On Monday, we learned that the Ineos-owned Olefins and Polymers (O&P) plant at Grangemouth, in Scotland, the largest in the UK, is at risk of closure. Its CEO warned that a mix of rising energy costs and carbon taxes meant the facility was not likely to be viable for much longer, and its parent company couldn’t support it from profits made elsewhere forever. Ineos has already closed one refinery in Grangemouth.

Hull-based Vivergo Fuels, owned by Associated British Foods, and Britain’s largest producer of bioethanol, has also said it may have to close in September. Last month, the Saudi Arabian firm Sabic, one of the world’s largest petrochemical manufacturers, said it would shut its Olefins 6 cracker plant in Wilton, Teesside, after 46 years of production. Nippon Electric Glass closed down the UK’s largest fibreglass factory in June; in March, production came to an end at Vauxhall’s Luton assembly line after 120 years of production. One by one, the UK’s factories are closing down.

The overall figures are shocking. The chemicals industry has witnessed a 40% decline in output since 2021. Cement production has been falling at a rate of 7% a year since the start of the decade. Car manufacturing is now down to levels last seen in the early 1950s, according to figures from the Society of Motor Manufacturers & Traders. Overall output in the “energy intensive industries”, according to the Office for National Statistics (ONS), has fallen by 35% since 2021, and is now at a 35-year low. It is devastating. The UK has not seen the mass closure of industry on this scale since the Thatcher era in the early 1980s.

What is wrong with the UK's industrial base?

It is not hard to work out what has gone wrong. Industrial energy prices have soared. Electricity has risen in price by 75% since January 2021, says the ONS – a crippling rise for most manufacturing firms, where power often accounts for more than half of the total cost base. Industrial energy in the UK now costs 50% more than it does in France, and double what it costs in the US. It is impossible for manufacturers to compete with that kind of difference in costs, no matter how efficient they are.

On top of that, the UK has imposed a bewildering array of green targets and levies that add even more to the cost of production. There is worse to come. A complex system of carbon border credits will charge them for their emissions, and the UK is about to adopt higher EU carbon levies as part of the government’s “re-set” of relations with the bloc. That might help us to hit net-zero, but it will make industry even less competitive.

The cost of employing people has gone up as well with the steep rise in national-insurance charges imposed by the chancellor in the last Budget. It is a lot easier for factories to switch to robots than it is for shops and restaurants, but they still need some workers, and the cost of everyone on the payroll has been increased at the worst possible time. It is clear that not only is the UK’s industrial base collapsing at an accelerating rate, but it is happening largely because of government policies.

That is a tragedy. Britain has a pretty successful industrial base, made up mostly of speciality chemicals, high-end engineering, defence, aerospace and life sciences, all with generous margins, plenty of expertise, and competing successfully on global markets. It accounted for about 10% of GDP, in line with other developed countries. It created plenty of jobs that were typically better paid and more secure than service-industry work, productivity was rising consistently, and it generated lots of exports. It was a vital part of the economy and should have had a bright future.

The mystery is why the government is not concerned. There is hardly any discussion about how to bring down energy costs; the state of the public finances is too dire to contemplate reversing the rise in NI charges; and no one seems to even mention relaxing the net-zero targets. One point is clear: more and more factories will close over the rest of the year – and no one in government seems minded to do anything about it.

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There is a lot going on this year. So much so that you might not have noticed one of the biggest game-changers out there: the nuclear-power renaissance. Until recently, most net-zero absolutists were convinced their dream could be achieved with renewables. Spend enough on wind and solar, and in a decade or two, you would have a “clean” grid delivering cheap electricity everywhere. No dirty fossil fuels and no dangerous nuclear plants either.

It hasn’t worked – and it is increasingly clear that it won’t (intermittency, distance, expense). That’s a problem when, thanks to electric cars, heat pumps and, crucially, artificial intelligence (AI), demand for electricity is rising very fast indeed. Demand from data centres is expected to double or even triple by 2030. Note that an AI query uses ten times the energy of an old-fashioned Google search. Today data centres use 2%-3% of total US electricity. By 2030 that is forecast to be near 9%. Overall global power demand is expected to grow by 3%-4% over the next five years – three times faster than it has over the last ten.

The good news is that there is another solution – and a really good one: nuclear. For the past few decades we have shied away from it on the basis that it’s dangerous. Turns out it isn’t. The accidents at Three Mile Island (1979) and Chernobyl (1986) left a legacy of what Dr Tim Gregory, author of Going Nuclear: How the Atom Will Save the World, calls “radiophobia”. But no one died at Three Mile Island (America’s biggest ever nuclear disaster); and the death toll at Chernobyl “likely falls in the region of a few hundred”, Gregory told The Telegraph. Worry less about radiation, says Gregory, and more about air pollution – something that kills millions of people and which nuclear power can make go away. But being clean is only the start of the brilliance of nuclear. It is also constant (something our grid needs – ask the Spanish); reliable, low emission and potentially cost-effective (this is a choice for regulators and planners). Build it out in the form of small nuclear reactors (SMRs) and you can construct modular units in factories and deploy them reasonably quickly and cheaply wherever energy is needed. If that all sounds good it is because it is – something pretty much everyone now seems to grasp.

The world is getting the message

In May, Donald Trump signed four executive orders with a view to quadrupling US nuclear capacity by 2050. He is after new-builds, restarts of retired plants and fast capacity upgrades of existing reactors. At the same time, he expects US uranium supply chains to be rebuilt – the US nuclear industry is currently more than 80% dependent on imports – with too much coming from hostile states. US tech firms are on board: the likes of Google, Microsoft and Meta have all signed their own nuclear-power purchase agreements with utility companies. China is all over nuclear, too. Since 2010 it has installed some 50% of new capacity, is nearing the US in terms of overall capacity and is a world leader in securing constantly cheaper reactor technology, to say nothing of speed of installation. Europe is backing away from its nuclear phase-outs as fast as possible.

You can see the shift in global institutions, too: the Asian Development Bank announced this week that it is considering lifting its funding ban on nuclear projects. The World Bank has already done so. Even in the UK, nuclear is once again on the go. Energy secretary Ed Miliband is committing to both new plants in the UK and to a “new golden age of nuclear for Britain”.

Some worries for the long term

The rate of change is accelerating. Nuclear delivers roughly 10% of global electricity, down from 17% in the mid-1980s, but there are still 441 plants in operation globally, with 65 more under construction and another 400-plus planned. Capacity should at least triple by 2050 – at least, that was the pledge at the COP20 climate summit. You’ll be wondering if there is enough uranium for all this. In the long term, there is. According to Gregory, the known reserves of uranium and thorium (which could also be used in the longer term) plus recyclable fuel could keep us all going for 900 years, while that dissolved in the ocean could do us for another quarter of a million. More than enough to tide us over. But it’s a different story in the short term. At the moment things may look fine, according to investment bank Jefferies. Newly mined supply is forecast to come in a bit below reactor requirements this year. For now that’s not a problem – the gap is plugged by secondary supplies (inventory drawdowns and recycling). Soon it will be a problem: these secondary supplies will fall short and the market will “face a structural reset by 2028”.

Think of it as a new pricing phase, says Nick Lawson of advisory firm Ocean Wall. The government legislature phase is complete. But next comes “buyer fear” – when everyone knows everyone will need uranium, everyone knows there isn’t quite enough and everyone also knows everyone else isn’t price-sensitive (uranium is a tiny part of the cost of generating nuclear energy). This is a worry for the long term, as it takes a while to build plants, but there’s a reason prices rose 5.5% in May and the uranium miners by rather more.

There are plenty of ways into the uranium market. In Canada there is Sprott Physical Uranium Trust (Toronto: U.U) – which holds exactly what it says. In the UK, you can look at a couple of trusts: Yellowcake (Aim: YCA) and Geiger Counter (LSE: GCL). Yellowcake holds physical uranium oxide concentrate, while Geiger Counter invests in exploration, development and production companies in the uranium sector.

Merryn hosts the Merryn Talks Money podcast at Bloomberg.com.

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Tens of thousands of energy customers with more than one electricity meter are in line for a share of £7 million in redress after the industry regulator found they were being charged more than the price cap on their bills.

The energy price cap is supposed to limit how much suppliers can charge out-of-contract customers for each unit of gas and electricity but a review by Ofgem found 34,000 have been overcharged by suppliers such as Octopus Energy, Ovo Energy and Utility Warehouse.

This issue specifically impacted those with restricted meter infrastructure between January 2019 and September 2024, which means they have more than one electricity meter point at their property recording energy usage.

Energy suppliers add a standing charge to bills for each meter a household has and Ofgem’s review found that those with more than one were ending up with charges above the price cap.

Its review found 10 suppliers were charging too much and ordered them to pay £7 million in compensation.

This includes £5.6 million in refunds and almost £1.4 million in goodwill payments.

Charlotte Friel, director of retail pricing and systems at Ofgem, said: “Our duty is to protect energy consumers, and we set the price cap for that very reason so customers don’t pay a higher amount for their energy than they should.

“We expect all suppliers to have robust processes in place so they can bill their customers accurately. While it’s clear that on this occasion errors were made, thankfully, the issues were promptly resolved, and customers are being refunded.”

Why are energy suppliers paying refunds?

Ofgem said it began an investigation in response to reports that some customers were being hit with multiple standing charges.

It found that ten suppliers had incorrectly overcharged 34,048 customers with more than one meter by charging multiple standing charges.

This meant that in aggregate, the unit rates exceeded the price cap for varying periods of time between January 2019 and September 2024.

Ofgem said the suppliers promptly refunded customers and took remedial action, including compensating customers and have provided assurances that this will not reoccur.

The total redress is made up of £5,645,963.37 of direct customer refunds and £1,383,685.26 of goodwill payments.

How much redress will energy customers receive?

You will only get compensation if you have more than one meter and the review found your energy supplier was charging too much.

Customers will be refunded automatically, if they have not been already, and do not need to do anything.

If you have since changed supplier, your old provider should be contacting you to arrange a refund.

The amount of redress varies by energy supplier.

Ofgem data shows Octopus Energy has the highest number of customers affected with 20,862 owed £2,636,884.

Utility Warehouse also faces a big bill of £2 million for 8,272 affected customers.

Friel added: “Today’s outcome serves as a reminder to all energy suppliers that they must implement the price cap properly and do their due diligence. It also shows that, where appropriate, Ofgem is prepared to work with suppliers that fail to comply with our rules.”

Six months ago, my husband and I welcomed a new addition to our home. Well, to our garden to be precise. A Daikin air source heat pump now sits below the kitchen window, with its accompanying hot water cylinder standing tall in a small, brick outhouse nearby.

It’s an important addition, as it provides heating and hot water to our Edwardian terraced home in north London, replacing an ancient boiler.

We qualified for the £7,500 government grant, part of the Boiler Upgrade Scheme (BUS), so the net cost for the heat pump was about £6,000, which we’re paying in interest-free monthly instalments.

The heat pump was a small part of a big renovation, but many people thought it was the most interesting bit – although for us, installing it was the most stressful part.

What does a heat pump look like, what does it sound like, how big is it, will it keep you warm in the winter, will it really cut your energy bills?... These were just some of the questions asked by friends and family. To be honest, our architect and builders were also curious.

While electric vehicles are now a common sight on UK roads, heat pumps are still a lesser-spotted garden feature. In 2023, only 1% of UK homes had a heat pump.

The number is rising each month, with more and more homeowners applying for the BUS grant. A total of 4,028 applications were received in March 2025, up 88% on the same month last year, according to the Department for Energy Security and Net Zero.

The BUS also includes £7,500 grants for ground source heat pumps and £5,000 grants for biomass boilers, although they’re even rarer than air source heat pumps.

The total number of heat pump sales in the UK, including those not supported by government subsidies, was just under 100,000 last year, according to the Heat Pump Association.

However, this is well below the government's target of 600,000 a year by 2028.

A recent poll from Heating Trades Network UK suggests that about half of households would be happy to ditch their gas boiler in favour of a heat pump if it cut their energy bills.

If you’re thinking of installing one, here are some lessons I’ve learnt from having a six-month old heat pump.

1. It’s difficult fitting a heat pump in an old property, but not impossible

Many heat pumps are installed in new-build properties, which I imagine is fairly simple. But to get the £7,500 grant, you’ll need to replace a fossil fuel heating system – like a gas boiler – which is more tricky.

The first thing to do is to book a survey, which you can get from an energy supplier like British Gas, EDF or Octopus Energy. I’d recommend having several done to get different quotes. You can also chat about what size heat pump they advise, whether you’ll need new radiators and so on.

We went with CB Heating, which is owned by EDF. As we were renovating our entire house, it perhaps made the installation easier. However, it did mean we had to coordinate CB Heating with our builders and plumber, as well as our energy supplier Octopus.

Issues we faced included: a hiccup with the way the electricity meter had to be changed before the heat pump could be installed (resulting in lots of chasing by us), having to pay an extra £1,000 for large water pipe connectors (which wasn’t obvious in the heat pump survey), and the hot water cylinder headache (should it go in the loft, or the kitchen? How far can it be from the heat pump? Our architect made numerous plans to incorporate where it could go. It ended up in the outhouse.)

2. Heat pumps are not noisy – but they are big

If I had a pound for every time someone asked me if our heat pump was noisy, I might have paid off its cost by now!

No, it’s not noisy. It’s right next to the kitchen window and we’ve never heard it in the house. Outside, you hear a low whirring sound from time to time. Like the white noise from a fridge or gas boiler.

The size is bigger than I expected though. Our model is 1.4 metres long, by 46cm deep, and 87cm tall. The heat pump would look less imposing if it could fit flush to the kitchen wall, but you have to have space all around it for the airflow.

I’ve got used to it, and I’m pleased we chose that particular spot for it – so do give the heat pump location some thought.

3. You will have arguments trying to work out how to use your heat pump

Heat pumps are completely different to gas boilers. Installing one is only half the battle, now you have to work out how it works.

The conventional wisdom to save on energy bills is to turn radiators off in rooms you’re not using, and switch the heating off when you go out. But with heat pumps, the idea is you keep it at a steady temperature all the time, because if it’s turned off, it has to work much harder to warm the house up again.

This has caused a lot of arguments between me and my husband, in terms of getting the heating just right, and also obsessing over our energy usage (and bills) on the Octopus app.

I recommend joining the Heat Pumps UK Facebook group for support and tips from heat pump owners and experts (and to settle any arguments).

4. Spend time researching energy tariffs – there are lots to choose from

So, onto the actual cost of running a heat pump. Most energy suppliers offer a tariff specifically for heat pump owners. We’re on the Octopus Cosy tariff, which has three unit prices for electricity depending on the time of day.

The idea is the heat pump turns on at the cheapest times (for us, that’s 4am-7am, 1pm-4pm and 10pm-midnight). And the radiators will stay warm throughout the day. We also put the washing machine and dishwasher on during these cheap periods.

You can shop around for a tariff that suits you best, regardless of which provider fitted your heat pump. For example, Scottish Power has a Heat Pump Saver tariff with a low-cost rate between 11am and 4pm.

5. It’s too early to say whether I’ll save money on my energy bills

We are, thankfully, much warmer in our house now we’ve got better radiators and ditched the ancient and inefficient boiler.

However, at the moment it doesn’t look like we’re saving money. For example, our February energy bill was about £160 for both this year and last year (when we still had the gas boiler).

Studies show that a heat pump should save you anywhere from £100 a year to more than £500. It makes me nervous that we’re not seeing any savings yet, but as I’ve mentioned, we’re still getting used to our six-month old heat pump baby, and hopefully we will become smarter in how we operate it and take advantage of the Cosy tariff.

In the meantime, I might ask the Facebook group for any more energy-saving tips that I’ve missed, and put a note in my diary to compare the annual cost when our heat pump turns one.

Is UK energy really dearer? It is. Last week saw an “awful April” jump in the price cap on domestic energy bills. That’s bad enough. But the deeper fear is that the UK’s continuing high energy costs are crippling whole sectors of the economy – notably manufacturing – and posing a clear threat to future national prosperity.

In the US in 2023 (the last full year for which reliable figures are available), one kilowatt hour of industrial electricity cost about 6.5p. For Sweden, the figure was 8p. For France, 18p. Here, it was almost 26p.

International Energy Agency data (for industrial electricity) shows recent prices in the UK have been more than three times those in the US, nearly double Japan’s, a third above Germany’s and more than double the average in the OECD club of developed nations. We currently pay more than any other comparable rich country.

Why are energy prices so high?

The UK is a net importer of natural gas and unusually exposed to the volatility in the global market. And in this country, the price of electricity has long been determined mostly by the gas price – far more so than in other similar countries, and even though the role of gas in the overall energy mix is falling.

In 2024, for the first time, renewable energy (mainly wind and solar power) generated most of the UK’s electricity. That’s an important milestone in making Britain a clean-energy “superpower” (one of the government’s stated “missions”).

So you would hope that since renewable energy is far cheaper than fossil fuels, prices would be falling steadily. Alas, of that there is no sign.

Why aren't there signs of energy prices falling in UK?

Two big reasons. First, the auction method by which energy retailers source their supplies. This isn’t a free-for-all auction where producers compete on cost to attract customers. It’s a marginal pricing system – similar to that seen in some commodity markets – where the “wholesale electricity price” for the whole market is set by the most expensive power station needed to meet the overall demand.

This reflects the fact that energy is critical to national security so all players need to be incentivised to keep the lights on. In the UK, gas plants are the most expensive almost all of the time (98% in 2023), whereas the European average for fossil fuels was just 58% – meaning that energy bills are much higher here.

The second reason is that while the UK is getting good at producing renewable energy, it’s terrible at scaling up its storage capacity. Despite improvements in battery technology, the UK’s current capacity is “far too small to store the volumes of energy needed to make a real dent in electricity prices”, says The Economist.

Indeed, the distribution network, National Grid, actually pays wind farms to shut down when it can’t cope with surplus supply. “That lifts network costs, which already account for a good chunk of end-user bills.” The government wants to achieve a carbon-free grid by 2030 by quadrupling offshore wind farms, doubling the number on land and tripling the production of solar power. But those plans are wildly optimistic, says Tom Jones on CapX – and its promises to boost storage even more so.

Meanwhile, the UK is left as a net energy importer – for the first time since the 1970s – in a volatile world where energy security is getting ever more central to geopolitics by the day.

How big a factor is net zero?

Here’s where it all gets highly contested. Jim Ratcliffe, the billionaire chief executive of Ineos, warns that high energy bills are pushing the once-thriving UK chemical industry “to extinction” – and cites the net-zero drive as a key factor. “De-industrialising Britain achieves nothing for the environment,” he says. “It merely shifts production and emissions elsewhere.” The counter view – enacted into law under the May government’s net-zero target of 2050 – is that leading on decarbonisation will save money in the long run by not frying the planet and by fostering new green technologies in the UK.

Even so, green levies and other so-called “policy costs” definitely do add to all our electricity bills. (These include the green gas levy and a vast array of upgrade and insulation subsidies and incentives.)

These costs don’t add up to 25% of our bills, as is sometimes claimed, but they are significant, nonetheless. According to the watchdog, Ofgem, for a typical household on an electricity-only tariff paying by direct debit, policy costs amount to about 16% of the total price cap. For a dual-fuel household, it’s about 11%.

What is to be done?

The chief reason UK bills have soared is that the wholesale price of electricity has long been disproportionately set by gas, says Pilita Clark in the Financial Times. One obvious way forward would be to overhaul that system.

Imperial College professor of energy policy Rob Gross has long argued for a restructuring that would shift older renewables and nuclear plants off wholesale prices and on to long-term fixed-price contracts like those used for newer green energy projects.

A second, more radical, route would be to remove gas from the auction-based system by either nationalising gas plants or shifting them to a long-term pricing model.

Third, GB Energy (the state-owned renewable energy investment body currently being set up by the government) could be allowed to buy and run green generators that bypass the wholesale market and sell more affordable power directly to consumers.

Other ideas that have been floated include burning more gas produced at home, a zonal pricing system to set prices based on local supply and demand, and hence incentivise big consumers such as factories to move to cheaper areas, or to ramp up nuclear power.

What’s the best way forward?

“Each idea is contentious,” says Clark. “Energy markets are complex. But anyone serious about cutting power bills and boosting British industry must grapple with these complexities. Simply attacking net zero is not nearly good enough.”

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The UK has one of the most mature solar markets in the world with around 16GW currently deployed across the country. The government has a target to quadruple this to 70GW by 2035, illustrating strong support for solar as a source of low-carbon power and energy security. The latter has become a priority following Russia’s invasion of Ukraine.

What challenges are facing the solar industry?

Although solar power is a cheap source of energy when the sun is shining, the price that generators receive is often tied to the natural gas price. This means that renewable-energy companies benefited when the price of gas more than doubled from the start of 2022 to August of that year, following the invasion of Ukraine. However, since then the gas price has returned to close to its long-term average, and shares in the renewables firms have slumped.

NextEnergy Solar Fund (LSE: NESF) is one of the hardest hit, down by 40%. It trades on a forecast dividend yield of 12% and a 30% discount to its latest net asset value (NAV). Presumably, due to that yield, NESF has become the most-bought investment trust on platforms such as Hargreaves Lansdown, AJ Bell and Interactive Investor.

A yield this high signals that there are risks. One reason for NESF’s low valuation could be its debt burden: this stood at £533 million as of September 2024, which is around 1.3 times its market capitalisation.

Management says that its weighted average cost of debt is 4.9%. Around 70% of the debt is fixed rate, including £200 million of preference shares issued in November 2018 and August 2019. These pay a fixed dividend of 4.75% and there’s no requirement to redeem them (instead they can convert into equity from 1 April 2036). The remaining £333 million debt consists of long-term interest rate hedged debt of £156 million and £153 million revolving credit facility (RCF) on a floating rate. This £333 million of debt will need to be repaid, either from cash flow generated by the solar panels or by selling off assets.

Management chooses not to show the entire £26 million interest costs from this debt running through a consolidated income statement. Similarly, it reports £1.14 billion of invested capital, yet total assets on the balance sheet are well below that level, at £771 million. The reason for the divergence is that management report as an investment entity on a non-consolidated basis. The company then makes investments in solar panels through holding companies and special purpose vehicles, which are off the balance sheet.

So we have fair-value accounting, a share price at a discount to book value, a reliance on short-term funding (the RCF), the use of alternative performance measures, and worries over the sustainability of dividends. This will sound familiar to anyone who followed banks before the financial crisis.

Slow progress on sales

In April 2023, management announced a capital-recycling programme, intending to sell five subsidy-free UK solar assets with 246MW of capacity. The proceeds would go to paying down debt, buying back shares and investing in battery-storage facilities. 

NESF completed phase I of the divestment in November 2023, selling the ready-to-build Hatherden solar project with 60MW of capacity for just £15 million. In phase II and phase III, it sold the operational Whitecross (35.22MW) and Staughton (50MW) solar farms for £27 million and £30.3 million respectively.

NESF has invested £1.14 billion of capital to own 983MW of installed capacity. It is difficult with the information available to understand how much the value of a project should increase as it goes from ready-to-build to operational, but if one were to use the sale of 60MW of ready-to-build capacity for £15 million as a lowest bound, it would imply that the mark-to-market fair value of the group’s entire invested capital is closer to £300 million! To pay down the £333 million of debt at the valuation achieved for phase I, NESF would need to sell more than its installed capacity. 

Fortunately, the subsequent deals have been better, even if both look to be surprisingly low valuations when we note by way of comparison that NESF paid €132 million (£110 million) for 35MW of installed capacity (the Solis portfolio) in Italy in December 2018.

Management is now more than halfway through the disposals, having sold 145MW of the 246MW target. Yet, based on the first-half figures, the debt burden remains stubbornly high.

Why is NESF trading at a steep discount to NAV?

Stockbroker Cavendish and renewable-energy specialists Longspur Capital have both published “sponsored research” (ie, the company pays for it) on NESF. Yet it’s not obvious from reading this material – which obviously aims to give the subject a chance to present its investment case clearly – why NESF is trading at a 30% discount to NAV, or what has caused the shares to fall 20% since the summer, when the gas price has risen sharply.

Still, there are a couple of helpful tailwinds. First, interest rates seem to have peaked with the Bank of England making two cuts. Secondly, gas for delivery next summer is being priced at a record premium to winter 2025/2026. Around half of NESF’s revenues come from inflation-linked government-backed subsidies, but it also locks in prices with a rolling three-year hedging programme. So rising prices should help support medium-term cash flows to maintain the dividend, and could also mean better prices on the remaining phases of the asset disposals.

Management said a few weeks ago that investors have sufficient information to calculate if the dividend is sustainable. That claim seems tenuous. The board has set a target dividend of 8.43p for the year ending in March, but cover is expected to decline to 1.1, down from 1.4 two years ago. The lack of consolidated reporting means it is hard to compare fair value accounting assumptions with the reality of cash flow. I hold the stock while feeling that a yield above 12% suggests a dividend cut is probable, but not inevitable.

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Investors in renewable infrastructure trusts have had a dismal few months. Share prices have kept falling, pushing up discounts to net asset value (NAV) and dividend yields from tempting to alarming.

The £2.2 billion Renewables Infrastructure Group (LSE: TRIG) now trades on a 26% discount and yields 8.3%, the £2.9 billion Greencoat UK Wind (LSE: UKW) trades on a 21% discount and yields 8.7% and the £580 million Bluefield Solar (LSE: BSIF) trades on a 24% discount and yields 9.2%. Elsewhere, some discounts are over 30% and some yields in double digits.

Explanations for this have followed rather than led the share prices. In September, David Bird, manager of Octopus Renewables Infrastructure Trust, warned of the increasing prevalence of negative power prices across Europe as a result of the roll-out of wind and solar capacity. He expected negative prices to reach 10% of hours by 2030 and 20% by 2050. Octopus is protected by long-term power purchase agreements (PPAs), he said, but the difference between the price at which renewable generators sell electricity and the baseload price is expected to widen.

The latest forecasts for power prices from Bloomberg New Energy Finance (BNEF) are 45% below the average forecasts of the renewables sector for wind and 61% for solar. BNEF expects baseload electricity prices to fall by 3.5% per annum in real terms up till 2050. This assumes the UK misses its target for net zero, but BNEF also publishes a forecast of annual falls of 1.6% in real terms in a net-zero scenario.

Wholesale power prices are set to fall

The UK government’s ambitious plan to significantly increase renewable power generation is based on the assumption that the wholesale price of gas will increase steadily until 2035, then flatten out. However, the International Energy Agency (IEA) expects fossil fuels to become cheaper and more abundant as consumption peaks and falls. In particular, the IEA expects liquefied natural gas (LNG) capacity to increase by 50% by 2030, which would make BNEF’s new forecasts highly plausible.

What’s more, the continued expansion of renewable energy will result in a glut of output when it is needed least (and hence negative power prices) and shortages when the wind isn’t blowing and the sun isn’t shining. Back-up generation by gas plants will still be expensive, since high fixed costs and overheads will have to be paid for, but while wholesale power prices are likely to be volatile in the short term, the overall trend will be downwards.

This volatility actually helps the battery-storage companies, who buy electricity when it is abundant to release when it is scarce, but battery lives are still too short to reconcile intermittent power generation with fluctuating demand.

The renewables gravy train could come to a grinding halt

Thus the renewables sector in the UK and Europe will increasingly rely on subsidies, even without the new capacity of which governments dream. With new capacity, the cost will be ruinous. The UK wants most of this investment to be financed by the private sector, but it would be insane for investors to rely on a growing rip-off for consumers and taxpayers. Generators such as Octopus may think they are protected by PPAs, but the market senses that this is unsustainable. Sooner or later, the gravy train could come to a grinding halt.

For the renewables trusts, “there is still downside risk that could negatively affect future net asset values”, as Christopher Brown at JPMorgan Cazenove says. A better alternative is Ecofin Global Utilities & Infrastructure Trust (LSE: EGL), of which I am a non-executive director. By investing globally in listed electricity generators, grids and other utilities, its shares have returned 21% in the last year against a weighted average of -8% for the renewables sector. It currently trades on a 12% discount to NAV and yields 4.2%.

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I want to look at what I can only describe as a stealth bull market: natural gas. The price is creeping up, and few are talking about it. Natural gas is a bit like silver: if it can disappoint, it will. So we begin this piece with that reminder. Natural gas has broken the soul of many a wiser man than me.

On the other hand, the next five years look pretty positive. It’s obvious that the world is going to go nuclear now, and that small modular reactors (SMRs) are going to provide the power artificial intelligence so badly needs.

However, it will be a good five years before they come on stream, so what is going to provide the power in the interim? The answer is natural gas. There is a problem though: supply. America’s gas wells seem to be drying up.

The North American shale gas revolution dramatically changed the outlook for fossil fuels. Peak Oil was a huge theme in the years before the global financial crisis, and then it disappeared, practically overnight.

Between 2005 and 2020, US natural gas production grew 90%, with shale accounting for the vast majority of it. In 2005, shale gas made up about 5% of US natural gas production; by 2020, the figure had risen to over 75%.

By 2017, the US had become a net exporter, especially of more transportable liquefied natural gas (LNG). The price, meanwhile, plummeted – good for consumers. Prices slipped from $16 per metric million British thermal units (MMBtu) to $3.50 today.

Obviously, we in the UK and Europe pay way more for our natural gas than they do in North America. It’s absurd: we have enough to supply ourselves in the UK. But we don’t because fracking is deemed environmentally damaging.

So we import gas from abroad, which is produced by, you guessed it, fracking. I suppose if it is fracked somewhere else, it’s less harmful. Then there are the transport costs and the environmental costs that come with that.

Where does the US get their natural gas?

Spanning Ohio, New York, West Virginia and Pennsylvania, Marcellus is the largest natural gas-producing field in the United States, contributing over 25% of production. In 2010, output was two billion cubic feet per day (bcf/d). By 2023, it exceeded 35 bcf/d, but production has been falling for almost a year now. We are currently at 26.7 bcf/d.

The next largest is Haynesville, in Louisiana, Texas, and parts of Arkansas. Extraction costs here are higher, and production stands at 16 bcf/d, but it is slowing here too, according to analysts Goehring & Rozencwajg. One of the few areas of growth is the Permian Basin, in Texas and New Mexico, currently producing approximately 23 bcf/d, but even there, growth is modest.

Now, it may be that the reason for stagnating growth is low prices, and higher prices will result in increased production. They usually do. That is the way with commodities. But natural gas prices have already doubled to around $3.50 per MMBtu this year, and they keep on creeping up. The other interpretation is that the North American shale gas revolution has passed its peak.

With America’s new president, you can expect plenty more investment in production than under the Democrats, and that should bring the price down, but the gas price rocketed after the election (from $2.70MMBtu to $3.50MMBtu) before pulling back to $3.10MMBtu, where it sits now. It may also be that Russian gas taps come back online to the EU next year, which means America will lose its new market.

Beware of calling peaks in natural gas. The world – when regulators allow it – has a habit of finding this abundant and clean energy source, and that always sends the price down. But all of this conjecture is factored into the price. And that is rising. For now.

How to invest in natural gas

The simplest way is to own the iShares Oil & Gas Exploration & Production ETF (LSE: SPOG), which is finally on the move. If you want something a bit more spicy, there is the Diversified Energy Company (LSE: DEC), which is the largest owner of old natural gas wells in the United States.

Diversified Energy acquires existing long-life, low-decline producing wells and then tries to improve or restore production. It hit a rough patch with some “well leaks and accounting tricks”, as my friend Charlie Morris of ByteTree puts it, which got the company into trouble and resulted in a 70% decline in the share price.

But now those problems are behind it, it should face fewer permitting obstacles under the new US administration. It is cheap for what it is: the market value is around $830 million. High-cost producers can be good plays on rising commodity prices. As the price of the underlying commodity rises, they suddenly become profitable.

Company X produces a commodity at £100/ unit. Company Y produces it at £200/unit. The commodity’s price jumps from £210 to £220. Company X’s profits do not even rise 10%. Company Y’s double. On the other hand, if the commodity falls to £190, company Y is in deep trouble.

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What undersea cables are we talking about?

There are two broad types of undersea (“submarine”) cables that form an increasingly vital part of the world’s global infrastructure. These are communications cables, which transmit data between continents, and power transmission cables, which carry ultra-high-voltage electricity. Taking the communications cables first: according to the research firm TeleGeography, there are 532 cable systems in service worldwide (as of September this year), with another 77 planned (these figures relate to publicly known communications systems, not power cables). These fibre-optic cables – which stretch for a million miles – are the backbone of the internet and international communications, including email, web pages and video calls. There is a common misapprehension that most global communication today is accomplished via satellites. In reality, more than 95% of all the data that moves around the world goes through these undersea cables, and they facilitate an estimated $10 trillion worth of financial transactions every day.

What about the undersea power cables?

Undersea telegraphy cables date from the mid-19th century. Power cables – carrying high-voltage direct current across oceans – are much younger, dating from 1954. The renewables revolution and technological advances mean that undersea power cables are a fast-growing area. To transport coal, oil or natural gas you need a ship or a pipeline. But in a world that produces electricity mostly from renewable sources, the market for transmission by long-distance cables is exploding. The first 660km of cable to transport electricity produced by wind power was not installed until 2009. That grew to just 750km by 2017, but jumped to 5,000km by the end of 2023 – and is projected (by consultancy 4C Offshore) to be 23,000km by 2030 and 56,000km by 2035 (for wind only). That’s still a relatively small network compared with communications cables, but it’s fast-growing, critical to the world’s changing infrastructure needs and is exposed to the same vulnerabilities.

What are undersea cables vulnerable to?

Undersea cables are built from sturdy materials, designed to withstand harsh ocean conditions and accidental impacts, and have a lifespan of about 25 years. In deep-water locations, the cables often have a black outer polyethylene layer, a wrap of metal tape, another polyethylene layer, a copper sleeve to conduct electricity and a tangle of stainless steel wires to provide strength. “Only then comes a small metal tube holding the fibre-optic lines, which are often coated with glycerine jelly as a last protection against the water,” says The New York Times. All this makes for a “remarkably sturdy” conduit, but not an inviolable one. Life on the sea bed is, by its nature, difficult – the cables are at the mercy of intense pressure, natural weather phenomena and (in shallower waters) disturbance by sea life.

What about accidents?

The most significant vulnerability is accidental damage or sabotage. Each year, an estimated 100 to 150 undersea cables are cut, in presumed accidents caused by fishing equipment or anchors. Repairs are slow and difficult and involve retrieving sections of cable before relaying them. Some of these accidents have limited impacts, but some can be devastating. And in a growing number of incidents, the suspected cause is deliberate sabotage. In March this year, multiple unexplained failures in cables off the coast of West Africa led to massive internet disruption in 10 nations. Last year, several failures in the Baltic Sea raised strong suspicions of sabotage by Russia and China. In recent weeks, there have been more incidents.

In late November, two fibre-optic cables connecting Germany and Finland, as well as Sweden and Lithuania, were severed within 24 hours. Authorities believe the ship responsible was a Russian-captained, Chinese vessel that is known to have passed close to the spot where the two cables intersect at around the time they were cut. Also in November, a Russian spy ship called the Yantar (officially an oceanographic research vessel) was escorted out of the Irish Sea by an Irish naval vessel. The Russian ship was first observed accompanying a Russian warship, the Admiral Golovko, through the English Channel.

Why was it of concern?

Because it entered and patrolled in waters that contain critical energy pipelines and submarine communication cables – raising alarm over the security of the critical interconnector cables that run between Ireland and Britain. These cables carry global internet traffic from huge data centres operated by tech companies with their European HQs sited in Ireland, including Google and Microsoft. It’s hard to secure definitive evidence that a particular ship has damaged a cable intentionally. That makes false alarms, and false attributions, possible – even likely. But it also makes cables an ideal target of the “hybrid warfare” favoured by Russia in recent years, including attacks on critical infrastructure.

What can affected countries do to protect undersea cables?

In September, a number of Western nations (including the UK and US) agreed at a UN summit to adopt a common approach to protecting the security and resilience of undersea cables. China complained that this was really a device to exclude it from an area of growing economic and strategic importance. Increasingly, though, we are likely to see nations taking matters into their own hands. Following the latest incidents, the Polish PM Donald Tusk urged Nordic and Baltic states to start joint patrols of their waters. “Our European security is not only under threat from Russia’s war of aggression against Ukraine but also from hybrid warfare by malicious actors,” said the foreign ministers of Germany and Finland in a joint statement “Safeguarding shared critical infrastructure is vital to our security and the resilience of our societies.”

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Energy providers could be forced to offer tariffs with low or zero standing charges, the regulator Ofgem has said. This move could give customers greater choice and reduce energy bills for some households, particularly those with low usage.

Some energy suppliers already offer this option, but it is not a requirement under current regulations. If implemented, the latest proposal would introduce greater consistency across the market.

It comes after tens of thousands of customers replied to Ofgem’s request for input on standing charges. Many asked for standing charges to be removed entirely, the regulator said, arguing this would make it easier for them to manage their bills and repay debt.

Standing charges aren’t bad news for all customers, though. Vulnerable customers with high energy usage could see their bills soar if these fixed costs were moved over to unit rates. Someone who needs to power medical equipment, for example, could be better served by a tariff which includes standing charges.

The regulator isn’t proposing abolishing current tariffs. Instead, it is looking at introducing a greater degree of choice. If the proposals are implemented, the Ofgem price cap could be reformed to include an additional option.

Tim Jarvis, director of general markets at Ofgem, said: “Many people feel very strongly that standing charges are unfair and prevent them from being able to manage their bills effectively.

“We want to give consumers the ability to make the choice that’s right for them without putting any one group of consumers at a disadvantage.”

Energy bill debt has risen to unsustainable levels

As well as outlining its proposal on standing charges, Ofgem has set out plans to increase and standardise the support offered to those struggling with energy debt.

Debt and arrears on energy bills have now reached almost £4 billion, according to the regulator. Much of this debt was built up during the energy crisis, but Ofgem says it has become unsustainable and requires a “bespoke, one-off solution to tackle it”.

One initiative could include a “debt guarantee” to improve the standard of service offered by suppliers when supporting people in debt. Ofgem says this will result in “consistent, compassionate and tailored support” for customers.

Suppliers may also be required to accept debt repayment offers from reputable third parties, including debt advice agencies or consumer organisations.

Will energy prices fall in 2025?

Energy bills have surged in the final months of the year, after the energy price cap rose by 10% at the start of October. This took the annual dual-fuel bill for an average household paying by direct debit from £1,568 to £1,717.

The actual amount you pay depends on various factors, including how much energy you use, meaning some people could pay more than this. Energy prices will rise again in January, this time by 1.2%.

Until recently, experts then expected bills to fall in the spring. However, energy consultancy Cornwall Insight (which is well-regarded for its accurate forecasts) recently changed its guidance to say bills are now likely to rise by another 1% in April.

The consultancy says market turbulence will push the average annual bill up to £1,762 for a typical dual-fuel consumer. It blames the Russia-Ukraine conflict for the ongoing uncertainty, as well as Donald Trump’s re-election and the potential impact on gas exports from the US.

“In addition, there is also the prospect of reforms adding extra costs to the price cap, which would represent at least another £20 on annual bills,” it adds. This could take bills to £1,782 – a 2.5% increase compared to January.

Beyond that, prices are currently expected to fall in July.

Prime Minister Keir Starmer has outlined a ‘Plan for Change’ to clarify the government’s priorities and give the public a benchmark to measure it by.

It comes after chancellor Rachel Reeves used her first Autumn Budget in October to outline £40 billion of tax rises, which the government has blamed on a spending inheritance left by the previous Tory government.

In a speech at Pinewood Studios in Buckinghamshire, Starmer outlined six milestones that he said would help the public “hold our feet to the fire".

The Prime Minister’s Office said: “The milestones relate to areas that the UK government has a direct role in delivering. As we deliver these milestones, where they are devolved matters, we will work in partnership to share best practice and align effort.

“Publishing these now will galvanise the effort of government and the country, and will mean every person in this country can see exactly how we measure up to the things that matter to them.

“We will not get everything right. No government can. But accountability is vital.”

It has been described as an “emergency reset” by the Conservatives.

Here is what the government is promising.

Raising living standards

The government has pledged to raise living standards in every part of the UK so working people have “more money in their pocket".

Starmer said the government is aiming to deliver the highest sustained growth in the G7.

This government has already raised the national living wage but critics will also point out that wealth taxes such as capital gains tax have been increased while inheritance tax reliefs are to be restricted.

Employer national insurance is also being increased, which companies warn will lead to hiring freezes and low pay growth.

There are also warnings that public sector pay rises and rising energy could push up inflation, meaning higher bills and falling living standards.

Starmer said households will know when they’re better off and Danni Hewson, head of financial analysis at AJ Bell, highlights that a “deliberate shift” away from a previous promise to have the highest economic growth in the G7 will certainly make it easier to explain to UK voters.

She said: “It’s also expected to be more deliverable as the government can’t control what happens in other countries. The chancellor already took a tentative step back from the pledge after the latest OECD forecast, talking about the UK being the fastest growing European economy in the G7.

“The return of Donald Trump to the White House along with uncertainty about how tariffs and US protectionism might impact global growth will certainly have been a consideration.”

Hewson adds: “The real question will be how many of us should feel better off and by how much.

“Falling inflation will help, assuming the increase in national insurance for employers doesn’t structurally change the economic picture.

“With Andrew Bailey already warning that interest rates could fall more slowly next year than they otherwise would have, households might wonder if they’d have felt better off if the Budget had never happened.”

Rebuilding Britain

The government has a target of building 1.5 million homes in England by reforming the planning system.

Planning decisions will be fast-tracked on at least 150 major economic infrastructure projects.

Starmer suggested this would mean homeownership doesn't move further away from working families.

Labour faces a big challenge though.

The latest Office for National Statistics data shows 37,140 new homes were built between January and March 2024. It puts the UK on track to build just 153,000 home this year - the lowest since 2016.

It is also unclear if any action will be taken on affordability as mortgage rates may be dropping but are higher than in recent years while house price growth has hit two-year highs.

“Building more homes may make them more affordable but for many lifetime ISA investors, a more proactive move would be to raise the property thresholds to stop people being fined or frozen out from buying in the area they want to live in,” says Hewson.

Ending hospital backlogs

Labour wants to meet the NHS standard of 92% of patients in England waiting no longer than 18 weeks for elective treatment.

A more healthy population ultimately helps put people back into work and reduces benefit bills.

The government will aim to do this through new local neighbourhood health services and by rolling out new technology in the NHS to make the systems more efficient.

Safer streets

Starmer has promised to put police back on the beat.

He said there would be a named officer for every neighbourhood and 13,000 additional officers, police community support officers, and special constables.

Giving children the best start in life

Labour has set a target of 75% of five-year-olds in England being ready to learn when they start school.

Securing home-grown energy

Energy bills have remained high since Russia’s invasion of Ukraine in 2022 and amid Middle East tensions.

One way to reduce gas and electricity costs is to generate more local supply, which is why Starmer has pledged for the country to use at least 95% clean power by 2030, while accelerating the UK to net zero.

The government will aim to do this through Great British Energy, which will back homegrown clean energy pioneers and projects.

The response, so far, has been mixed.

John O’Connell, chief executive of the TaxPayers' Alliance, said: "The prime minister’s muddle of metaphors can’t hide the fact that this is little more than a reheated version of previous speeches.

“Keir Starmer has correctly identified some of the core issues facing this country, including the lethargic nature of Whitehall. But rather than taking the difficult steps to solve them, he’s delivering government by platitude.

“Instead of subjecting taxpayers to tedious monologues, he should focus on the reform and growth that they deserve.”

The Institute for Government said the move away from words and ambitions to numbers and deadlines is designed to ramp up urgency across government and demonstrate progress to the electorate, which is a “necessary move, and a risky one".

The thinktank said: “Targets can be powerful tools for improving services by focusing activity on specific objectives, increasing accountability, and incentivising deeper analysis of the causes of performance problems. But poorly designed targets can damage performance by reducing the ability of front-line staff to use their professional judgment and incentivising them to prioritise easy wins or ignore important issues.”

Hewson adds: “Labour’s first months in office haven’t exactly made people feel better about anything. We were warned things would have to get worse first before they get better, but Labour ran on a message of change during the election and this reset ultimately feels the same, just not quite as ambitious.”

Energy customers stung with rising prices could save hundreds on their bill at weekends with ScottishPower as it launches 50% off at weekends, saving you up to £300 a year.

Energy prices shot up by 10% on 1 October and prices for those on standard variable tariffs will rise again by 1.2% in January 2025, confirmed by the latest Ofgem energy price cap.

If you are trying to keep your energy cost low, could ScottishPower’s deal help or are you better off fixing your energy tariff?

Who can get ScottishPower’s half-price weekends deal?

If you have a smart meter you can apply for the 50% off weekend deal with ScottishPower.

The deal is available to new and existing customers with a working smart meter that sends accurate half-hourly meter readings.

You’ll need an online account with ScottishPower and must opt-in for the offer.

Your savings will appear as a ‘Power Saver credit’ on your bill. The discount will apply to the unit rate, but you will still pay full standing charges.

You’re not eligible for this scheme if you are signed up for any of the following:

• Fixed energy tariff
• Prepayment meter
• ScottishPower’s Heat Pump Saver tariffs
• EV Optimise tariff

Andrew Ward, chief executive of ScottishPower’s customer business, said, “We know our customers are savvy when it comes to managing their energy use. We’re driving initiatives to help reduce bills, especially at this time of year when people are using more energy and the new price cap comes into force. Through half-price weekends, we hope to raise awareness of the benefits of using less electricity at peak times and encourage shifting usage to other days where they can.”

When is ScottishPower’s half-price energy available?

ScottishPower customers who use a smart meter will be eligible for half-price electricity during weekends this winter.

This discount will run from 11am to 4pm every Saturday and Sunday from 1 December to 30 April 2025.

Is ScottishPower’s 50% off deal worth it?

If you’re a customer and are eligible for the discount, then it makes good sense to take advantage.

But, it may also be worth taking a look at how much you're paying with a standard variable tariff as you could make savings by switching to a fixed rate tariff. See our article on should you fix your energy tariff.

While we do not know whether energy prices will fall in 2025, experts have predicted prices will remain stable.

The energy regulator Ofgem has announced a 1.2% increase in the energy price cap for the first three months of 2025, taking the average household bill to £1,738 - £21 more than what you're paying under the current price cap.

With the energy price cap having already risen by 10% in October, the increase, while small by comparison, piles more pressure on consumers that had hoped energy prices would fall in the new year.

The increase will see the average household pay an extra £21 for their energy use per year, or £1.75 per month.

Ofgem states that the average household paying by Direct Debit will now pay £1,738 per year under the new pricing. This, it says, is 10% cheaper compared to January-March this year, and 57.2% lower than the £2,321 annualised cost during the energy crisis in the first quarter of 2023.

“While today’s change means the cap has remained relatively stable, we understand that the cost of energy remains a challenge for too many households,” said Tim Jarvis, director general of markets at Ofgem.

“Twenty-one pounds might not seem a lot in the grand scheme of things,” said Danni Hewson, head of financial analysis at AJ Bell, “but the fact the rise in the price cap comes off the back of a chunky October increase and is imposed just as households need to use more power will be tough for some to take.”

Compounding the effect of the hike is the chancellor Rachel Reeves’ decision to cut the Winter Fuel Allowance as one of the first moves of her Labour government. This deprives pensioners of an annual payment worth up to £300, replacing it with a means-tested benefit payment linked to Pension Credit eligibility.

“This year there is no cost of living payment to cushion the impact” of the price cap increase, says Hewson, “and for millions of pensioners there’s also the troubling issue of scrapped winter fuel payments.”

What is the energy price cap?

The energy price cap is set by Ofgem and determines the maximum rate per unit and standing charge that energy companies can bill customers for their energy use in default out-of-contract deals.

The changes that will take effect between the current quarter and the upcoming are outlined below.

These figures are rounded to two decimal places and based on the England, Scotland and Wales average for people who pay by Direct Debit. They include VAT.

The actual rates that you will be charged will depend on your specific circumstances, including where you live, how you pay your bill, and the type of meter you use.

Why do energy prices keep rising?

Gas and electricity prices are driven primarily by wholesale prices in the international markets. Global factors that increase the scarcity or reduce the supply of oil and other energy sources pushes the price of energy up.

The geopolitical backdrop currently adds a great deal of uncertainty into energy supplies.

“Our reliance on volatile international markets - which are affected by factors such as events in Russia and the Middle East – means the cost of energy will continue to fluctuate,” says Jarvis.

“With the prospect that energy costs are unlikely to return to pre-2022 levels, finding a sustainable solution to the UK’s long-term energy situation must remain a priority,” says Hewson.

Can I switch to a cheaper energy tariff?

Ofgem analysis shows that approximately 1.5million households switched tariff over the past three months. The regulator is encouraging consumers to explore the rising choice of energy providers in the market,

“With more tariffs coming into the market, there are ways for customers to bring their bill down so please shop around and look at all the options,” said Jarvis. The cheapest fixed deals currently available could save the typical dual fuel customer £140 compared to the upcoming cap level, or £210 if they are willing to sign up for additional boiler cover service.

He also urges customers that are struggling with their energy bills to “speak to their supplier to make sure they’re getting the help they need.” Ofgem’s rules require energy suppliers to work with their customers to agree an affordable payment plan. They can also help by offering deferred payments, access to hardship funds, and advice on how to reduce their energy consumption.

Ofgem also recommends that customers review the way in which they pay their energy bills. Around five million customers pay through standard credit payments, effectively paying for their energy after it has been used.

However, Ofgem says that customers could save £100 by switching from standard credit payments to Direct Debit payments or smart PPM. These are much cheaper than standard credit payments, particularly during winter.

See our explainer here on 14 other ways to save on your energy bill.

BP has announced its lowest quarterly profit since Covid, says Tom Wilson in the Financial Times. Lower oil prices and weak refining margins weighed on the group’s performance. The 30% year-on-year drop in third-quarter earnings to $2.27 billion will “maintain pressure” on CEO Murray Auchincloss, whose pledge to make BP “simpler, more focused and higher value” has so far “struggled to boost performance”. BP will buy back another $1.75 billion of shares but promised to review the level of buybacks next year.

While BP has opted to “soften the ground” by talking about reviewing the payout, “anyone can see the direction BP is taking”, especially as its shares are near a four-year trough, says Bloomberg’s Javier Blas. BP is now “worth less than during the worst moment of the Gulf of Mexico oil spill in 2010”.

It was only able to keep dividends unchanged by taking on leverage, with the result that it is “the most indebted, relative to its size and cash generation, among the Big Oil companies”. Given that “the credit rating comes ahead of the shareholders”, payouts of $1 billion per quarter next year would be more realistic.

Oil sector outlook

It’s not just BP that is feeling the pinch. The “cork-popping years” for America’s biggest oil companies may also be nearing an end, says Collin Eaton in The Wall Street Journal. Exxon and Chevron also posted lower third-quarter profits. Both companies believe that cost-cutting and reduced spending since Covid have prepared them for the worst, with both firms saying they plan to protect shareholders’ payouts. But with a glut keeping prices low, some smaller shale drillers are set to cut buybacks and dividends.

Perhaps the only energy company with good news for shareholders is Shell, says Derren Nathan of Hargreaves Lansdown. It significantly beat earnings expectations thanks to a strong performance in all parts of the company except renewables. This has given management the confidence to “push the button” on a $3.5 billion buyback, the 12th consecutive quarter where plans to buy back $3 billion or more have been announced, while “still managing to shrink its net debt pile”. However, while it seems to be “finding the right balance between rewarding shareholders and investing in growth”, any further pullback in investment “could raise some questions on the group’s ability to future-proof the business”.

Even companies sensibly managing capital and bracing for the energy transition will struggle when there’s too much oil, says Robert Cyran for Breakingviews. Such a day could come sooner than many think, especially as oil cartel Opec and its allies are “sitting on record spare capacity”. Meanwhile, the growth in global demand is likely to slow down, driven by the spread of electric vehicles, which now account for 23% of new car sales. With the International Energy Agency estimating that supply capacity will exceed demand by eight million barrels a day by 2030, investors should “drill for investment ideas elsewhere”.

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A “boy-who-cried-wolf mindset” has set in on energy markets, says Matt Egan for CNN. Traders, caught out by previous false alarms, have become increasingly “numb to the cascade of crises” afflicting the world – a growing war in the Middle East is thus not causing the oil market the panic you might expect. “Pre-shale revolution, this type of situation would have sent prices well above $100” a barrel, says Helima Croft of RBC Capital Markets. Still, as Bob McNally of Rapidan Energy Group puts it, “the story of the village boy who cried wolf did not end well – for the village or the boy”. While markets aren’t yet panicking, they are feeling nervous following comments from Joe Biden that Israel discussed striking Iranian oil facilities in retaliation for last week’s missile attack. 

Brent crude prices topped $80 a barrel recently for the first time since August, before easing back mid-week, say Rafe Uddin and Jamie Smyth in the Financial Times. Oil rose 8% last week for its biggest weekly gain since the start of last year, and has climbed almost a fifth since hitting a year-to-date low last month. Iran accounts for roughly 2% of global crude exports, or two million barrels per day (mbpd), says Anthony Harrup in The Wall Street Journal. 

A six-month halt to that supply could see Brent “temporarily rise to a peak of $90”, assuming other oil producers step in to fill some of the shortfall, say Goldman Sachs analysts. In the short-term, markets will need to put more “risk premium” on oil – the extra paid to cover the risk of supply disruptions, says David Oxley of Capital Economics in a note. “Depending on how things pan out, this “could conceivably” be in the order of “another $20 a barrel to oil prices”.

Why is there a high supply of oil? 

One reason for the market’s relative calm is that there is plenty of extra oil sloshing around, says The Economist. The Opec+ grouping of producers is collectively sitting on more than five mbpd in unused production capacity, which it has been withholding to prop up prices. That is “more than enough to make up” for any eventual loss of Iranian crude. But the situation is fragile. A regional conflagration could see Iran close the Strait of Hormuz, the shipping lane through which 30% of the world’s seaborne crude oil flows. That could send prices surging toward triple digits. For all the excitable talk, Opec quietly abandoned its quest for $100 a barrel oil in June, says Javier Blas on Bloomberg. 

In view of global oversupply heading into next year, “given a binary choice between $100 and $50 for next year, I’d take the latter bet”. As a rule of thumb, a 5% rise in oil prices adds approximately 0.1% to inflation in advanced economies, says Roger Bootle in The Telegraph. That is much less than during the 1970s energy crises, when Western economies were more “oil intensive” than they are today. These price rises, therefore, don’t yet represent a major inflationary risk. Indeed, given weak global oil demand and rising supply, “over the next year the likelihood is that oil prices will soften”.

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Two decades ago, I was covering energy when oil moved above the $20-$30 a barrel range, where it had trodden water for years, and headed above $40. At the time, few analysts thought it would stay there and I don’t remember any believing it could top $50. As we now know, oil kept rising – with some volatility – to trade consistently in the $90-$110 range from 2011 to 2014. 

In hindsight, nobody fully predicted the impact of rising demand in emerging markets, especially China, where it went from 4.6 million barrels a day (mb/d) in 2000 to 9.3mb/d by 2010. An oversight like that should make us wary about predicting too confidently what recent events – from Saudi Arabia saying it will raise output and drop its $100 target price, to the risk of war in the Middle East – will mean. Still, the history of the oil price may give us a few clues about what to watch.

Oil prices over the years

In the 1950s and 1960s, oil was abundant, but the oil price was carefully controlled and fairly stable (equivalent to about $30 in today’s terms). However, the power of Middle East exporters was rising as rapid demand growth swallowed up spare capacity in the US. In 1973, prices soared as these producers announced an embargo on exports to countries that had supported Israel during the Yom Kippur War. A second spike followed in 1979 after the Iranian Revolution and as the Iran-Iraq War disrupted production. 

High prices drove rapid growth from new sources – eg, the North Sea and Alaska – and crude declined steadily. Saudi Arabia tried cutting production to defend higher prices. Its output fell from around over 10mb/d in 1980 to under 3mb/d in 1985, when it got tired of this and ramped up again to regain market share. Prices briefly fell 50% before spending most of the next decade fairly steady (barring a spike in the Gulf War). 

Then we had a demand slump in emerging markets crisis in 1997 and 1998; the recovery and the boom of the 2000s; a brief collapse during the global financial crisis; and then a rebound to what looked like a permanently higher era. This sparked the US shale oil boom. Saudi Arabia increased production to try to crush it, halving prices again. The pandemic, which hit demand, and sanctions on Russia after it invaded Ukraine, which disrupted supply, bring us up to date. 

The balancing act now is US shale versus Saudi Arabia. US firms needed a breakeven price of $64 to drill a new well earlier this year, according to a survey by the Federal Reserve Bank of Dallas; existing wells needed $39 to cover costs. If that’s broadly right, shale supply should be squeezed if Saudi Arabia takes prices below $60, as wells run down (shale wells decline faster than conventional ones) and new ones aren’t drilled. Conversely, get to $90 and they’ll throw everything at it. 

So that seems a logical – if volatile – range over the medium-term. Still, the tail risks go every possible way: a Middle East regional war that locks in capacity, a peak and decline in US shale, a faster transition to renewables, an economic crisis (eg, in China), or even, on the bull side, demand that rises faster than expected in India.

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Landlords could be forced to improve the energy efficiency score of their portfolios after the government announced it would be reviving the Conservatives’ Energy Performance Certificate (EPC) plans.

Sir Keir Starmer’s administration will push for a new law that would require rented accommodation to be rated EPC C or above. The move resurrects plans unveiled by the last government, which were dropped after Tory backbenchers rebelled against them.

EPCs have been a controversial topic in recent years, particularly given their accuracy has been questioned. However, having a high EPC rating has been shown to inflate house prices.

It comes as the key elements of the Renters Reform Bill - which was lost when Rishi Sunak called the general election - have been brought back to Parliament in the form of Labour’s Renters’ Rights Bill. While at least some landlords appear to have accepted that the reforms will be put in place, many have already been abandoning the buy-to-let sector amid high mortgage rates and poor returns. Rents are also beginning to hit an affordability limit - particularly in the south of England.

Government announces ‘biggest ever’ energy efficiency reforms

Coming in the wake of Energy Secretary Ed Miliband’s speech at the 2024 Labour Party Conference, the government has said it will launch a consultation on minimum energy efficiency standards in rented homes “by the end of the year”. This will form part of its ‘Warm Homes Plan’ which aims to make all homes “cleaner and cheaper to run” by boosting the rollout of insulation, solar panels and heat pumps.

Should the proposals proceed as planned - possibly as soon as the new year - private and social landlords will have to improve their EPC score to grade C or above by 2030. Under current rules, an ‘E’ score is the legal minimum in the private rented sector, while there are no minimum requirements for social housing.

Miliband said these requirements were “below decent standards” and promised “warmer homes, lower bills” for tenants. The government claimed its plans would provide “the biggest potential boost to home energy standards in history” and could lift more than one million households out of fuel poverty.

Buy-to-let sector: EPC rules ‘must be realistic’

Reacting to the announcement, the buy-to-let sector has urged the government to give it enough time and adequate support to reach the desired energy efficiency standards.

Head of policy and campaigns at estate agents professional body Propertymark, Timothy Douglas, said: “Property agents want to see more energy-efficient homes, but new rules and requirements must be realistic and achievable. Furthermore, without providing landlords with incentives and access to sustained funding, it is unlikely that energy efficiency targets for the private rented sector and a reduction in emissions across the property sector will be met.”

Douglas added: “The consultation process must shine a light on the different types of property across the rented sector to ensure the targets, guidance and funding prioritise the most difficult to decarbonise.”

The National Residential Landlords Association (NRLA) pointed out that more than 31% of private rented properties were built before 1919. It added that these homes were “some of the oldest, and hardest to improve, properties” in the UK, and called on the government to set out a “clear and comprehensive plan” for improving energy efficiency.

Its policy director, Chris Norris, said: “The NRLA wants to see all rented properties become as energy efficient as possible. The sector needs a clear trajectory setting out what will be expected of it and by when. This plan must also ensure sufficient numbers of tradespeople are in place to undertake the work that will be required.

“Alongside this, as the Committee on Fuel Poverty has warned, is the need for a financial package to support investment in energy efficiency measures. At present, the private rented sector is the only housing tenure without a bespoke package to support work to upgrade homes.”

The NRLA also pointed out that many of the landlords it represents had already achieved the government’s aims. It highlighted official data from 2022, which showed almost 45% of privately rented homes in England had an EPC rating of at least a C - more than double the percentage recorded in 2012.

Cost of EPC ratings target could be £23.4bn, Rightmove finds

According to report by Rightmove, which was published on 4 October, around 2.9 million homes will need to have their energy efficiency improved to meet the government's proposed target.

By taking recommended energy efficiency improvements from the EPC register and combining them with its whole-of-market data, the property listing website said it had found that the average retrofit bill per property would come to £8,074. At a nationwide level, this would lead to a bill of £23.4 billion, it said.

Reacting to the figures, Rightmove's director of property science, Tim Bannister, said:  "It’s clear from our analysis that more needs to be done to help the mass market transition to greener homes, especially those living in homes worth under £400,000.

“In the rental market, through discussions with agents and our research, we know landlords want to provide comfortable, energy-efficient homes, but green upgrades can be costly. For landlords of lower-value properties, the financial returns may not always justify the investment.

“Now that the government has confirmed there will be a consultation on raising the minimum energy efficiency standards in rental homes, we look forward to seeing much needed clarity, and ideally support, for landlords, which in turn should benefit tenants over the medium to long term.”

When Russia invaded Ukraine in 2022, energy prices spiked as traders rapidly tried to price in the impact on the market. In the following months, Russia, formerly one of the world’s largest suppliers of hydrocarbons, was steadily cut out of markets as sanctions bit. Energy markets had to rebalance, and the shock waves are still being felt today. 

As one of Russia’s largest energy customers, Europe felt the impact of the changes more than any other region. It depended on Russia for gas, and traders had to scramble to find new supplies when key pipelines were cut off. Countries turned to the liquefied natural gas (LNG) market for these supplies. 

LNG is made by cooling natural gas to about -162°C and removing impurities such as carbon dioxide and dust. When the gas is cooled to a liquid, it’s much easier to transport. It takes up just 1/600th of the volume and can be transported in giant ships from one side of the world to the other. When LNG arrives at a destination in its supercooled liquid state, it is then turned back into a gas that can be used in power plants or even to power vehicles. 

However, getting natural gas into this cooled state requires complex infrastructure, which can cost tens of billions of dollars to construct. That’s where companies such as Australia’s Woodside Energy (LSE: WDS) come into play

Woodside Energy enters a growing market

LNG was already being touted as one of the key technologies that can help with the energy transition. Natural gas is cleaner and more energy-efficient than other hydrocarbons such as oil and coal. The snag is that it is difficult to transport, but LNG gets around this. 

Gas-fired power plants are likely to remain a key part of all energy networks despite the rise of renewables, as they can be quickly turned on to fill generation gaps when the wind isn’t blowing or the sun isn’t shining. Gas-fired power is also much cheaper than nuclear. 

However, the Ukraine war supercharged the growth of the global LNG market. LNG imports into the EU grew from 81 billion cubic metres (bcm) in 2021 to 139bcm in 2023, making it a key source of gas supply for the EU with more than 40% of total gas imports. This tipped the global market from a small surplus at the beginning of 2022 to a deficit. Demand for the fuel is expected to grow over the coming decade, and supply is expected to ramp up as well. 

Analysts at investment bank ING expect a “wall of LNG export capacity” over the next six years. They project that global demand is expected to increase 35% by the end of the decade, driven by demand from Asia. In comparison, supply is expected to increase by 45% as new facilities in the US and Qatar come online. 

These projections should be taken with a pinch of salt (for instance, Woodside reckons demand will jump 50% over the same period). Major projects in regions such as Russia, Mozambique and even the US have been dogged by political interference, budget overruns and technical challenges. And the cost and complexity of building a facility to turn natural gas into LNG cannot be understated. 

Chevron’s Gorgon project in Australia is one of the world’s largest LNG projects and makes a great case study. When construction started in 2009, Chevron and its partners put the final cost at $37 billion. By the time production began in 2017, it had cost $54 billion.

Should you invest in Woodside Energy?

Woodside has ambitions to turn itself into one of the world’s largest LNG players. Just under 50% of the firm’s output is now LNG. The rest is crude oil and other oil and gas products. While its current LNG capacity of 12 million tonnes per annum (mtpa) is still only about a fifth of that of industry giant Shell, it has laid out plans for rapid expansion. 

In 2022, it completed a merger with the oil and gas arm of miner BHP, and followed this by adding a London listing to its existing one in Sydney. Last year, it explored a merger with smaller Australian peer Santos, but that deal fell apart in February. In July, it paid $900 million to acquire Tellurian, a US firm that had been struggling to raise cash to develop an ambitious LNG project called Driftwood on the US Gulf coast in Louisiana that could eventually produce 27.6mtpa. Last month, it paid $2.4 billion to acquire a low-carbon ammonia project in Texas. 

Woodside thinks it has two edges over other firms. It can’t compete with Middle Eastern producers in terms of cost, but its Australian projects can outperform projects in the US. Unlike other producers, which sign long-term sales contracts with customers, Woodside has moved to what it calls “portfolio marketing”. 

Essentially, that means the company can react quickly to supply and demand changes in the market. Being good at portfolio marketing requires flexibility and an active trading fleet. Woodside has six LNG carriers under long-term agreements, and many more are under short-term contracts. Five more ships are under construction for long-term contracts, and these will be tied to Woodside’s new Scarborough LNG project, which is due to deliver its first gas in 2026, with an expected peak output of 8mtpa. 

Woodside has also adopted a different approach to building new projects. Rather than taking on all the risk, it seeks partners, such as Japanese groups JERA and LNG Japan and US private-equity fund Global Infrastructure Partners on Scarborough. It hopes to replicate the same approach with Driftwood, which could have a final cost of $25 billion. 

Despite the growth prospects, Woodside looks cheap, trading at just 10.5 times 2024 earnings. It also offers a dividend yield of 7.5%.

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