'We should not be at the mercy of events abroad'

UK Prime Minister Keir Starmer is on a three-day Gulf trip, holding talks with Gulf leaders and a phone call with US President Trump to seek a practical plan to reopen the Strait of Hormuz after an effective closure that has already pushed UK petrol and food prices higher. He is pushing for 'energy independence' through renewable investment and domestic policy changes (workers' rights, removing the two-child benefit cap) to shore up resilience against recurring geopolitical shocks; this signals potential policy support for renewables and political risk to North Sea oil/gas. Expect upward pressure on energy and shipping-related costs and renewed political debate that could drive sector rotation between domestic hydrocarbons and clean-energy assets.

Analysis

A stated policy pivot toward “resilience” implies fiscal and procurement priorities shifting from short-term income support to capex-heavy energy and grid projects; a realistically credible package in the low tens of billions GBP over 3–5 years would re-rate regulated utilities, grid builders and large-scale storage developers while creating multi-year demand for renewables supply chains. Because onshore and permitting constraints make rapid domestic supply increases difficult, there will be a persistent mismatch between political intent (fast transition) and physical delivery (multi-year lead times), which favors companies with shovel-ready projects and balance-sheet firepower rather than speculative developers.

Second-order supply-chain winners are likely to be specialist contractors and engineering firms that can deliver grid reinforcement, HVDC links, and lithium-ion/flow battery factories — these often trade at discount multiples to pure-technology peers but capture durable annuity-like revenues from long PPAs and regulated contracts. Conversely, North Sea-dependent E&P and oil-service vendors face policy and permitting volatility that amplifies capex unpredictability; a near-term policy squeeze can create spare-capacity tightness and price spikes in gas/liquids even as the long-term direction is decarbonisation.

Tail risks cluster by horizon: days–weeks are event-driven spikes in energy prices from any new geopolitical shock; 3–12 months is the window where budgets, subsidy schemes and auction calendars will move market expectations; 1–5 years is the structural reallocation of investment and labour. Reversals could come from (a) a sharp fall in global gas prices that undermines the urgency to invest domestically or (b) rapid diplomatic de-escalation that reduces premium on “resilience” spending, so position sizing should reflect binary near-term event risk and path-dependent policy execution.

Key Decisions for Investors

• Long National Grid (NG.L) 6–18 months: overweight regulated transmission exposure to capture grid reinforcement and interconnector spend tied to resilience programmes. Target: 15–25% upside if a multi-year capex plan is announced; risk: political regulatory squeeze and permit delays could compress returns — size as 3–5% of equity sleeve.
• Long SSE (SSE.L) or similar UK renewables/retailer 12–36 months: buy on pullbacks into government auction cycles where contracted revenue and merchant optionality both re-rate. Aim for 20–40% IRR if large subsidy-backed projects proceed; downside is developer execution risk — use staggered entries across 6–12 months.
• Pair trade — long regulated/renewables (NG.L or SSE.L) vs short pure North Sea E&P (Harbour Energy HBR.L) 3–12 months: long obtains policy-protected cashflows while short benefits from drilling/permitting uncertainty and weaker access to capital. Reward asymmetry: limited regulatory re-pricing upside for E&P vs high downside if domestic supply curbs persist; hedge with oil/gas call protection to cap black-swan spikes.
• Tactical options hedge — buy front-month TTF/NBP call options 1–3 months (or call spreads to limit premium): low-cost insurance against supply shocks and shipping disruptions that create short-term gas/utility price shocks. Use as portfolio insurance sized to cap loss to the premium but provide >3x payoff on multi-week tightness events.