Rachel Reeves has held an emergency meeting with oil and gas chiefs amid a warning that energy bills could rise by £500.
The Chancellor spoke at No11 Downing Street to senior executives from the oil and gas industry including BP, Adura and Offshore Energies UK.
Ms Reeves signalled that she may postpone replacing the windfall tax on the industry given the impact of the Iran war.
North Sea gas and oil operators swiftly warned against any delay.
The Chancellor opened the meeting by stating it was the Government’s commitment to act in Britain’s national interest in response to the Iran war.
A Government source said: “The Chancellor was clear with industry that she wants the Energy Profits Levy (windfall tax) to come to an end. She has made that promise and she stands by it.
“Indeed, it was a commitment she wanted to make this week.
“But the crisis in the Middle East has had real-time consequences on oil and gas prices and it is right that we respond to this.”
North Sea operators had pledged to invest £50 billion between now and 2050 if the EPL was replaced with the Government’s own proposed successor windfall tax, the Oil and Gas Price Mechanism.
Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce, said: “We welcome the Chancellor’s recognition that the EPL must come to an end now. Events in the Middle East strengthen, not weaken, the case for change.”
Earlier, leading economists warned that Donald Trump’s war on Iran could send energy bills for millions of households in Britain spiralling by £500 a year.
The Resolution Foundation said that many families were looking forward this year to a rise in living standards.
However, it stressed that this could be knocked off course by the full-scale conflict which has erupted in the Middle East after the US/Israeli attacks on Iran.
In her Spring Statement on Tuesday, Chancellor Rachel Reeves announced the latest Office for Budget Responsbility forecasts for inflation, wages, unemployment, interest rates, house prices and rents.
The foundation further analysed the impact of personal tax and benefit policies that are due to take effect over the next four years, to build its own forecast for living standards growth over the Parliament.
It concluded that living standards for typical working-age families are set to grow by 0.9 per cent, or £300, over the coming year (between 2025-26 and 2026-27).
For lower-income households, it added, living standards are set to grow by 3.9 per cent, or £800.
The economists stressed that this would be the second strongest year for living standards growth in the past two decades for poorer families.
The rise is driven by the abolition of the two-child benefit cap, it added, and the first ever permanent above-inflation increase in the basic rate of Universal Credit.
However, it warned that the upbeat news risks being overshadowed by the domestic fallout from the Iran war.
The foundation emphasised that if recent rises in the price of oil and gas were to be sustained they could add around a percentage point to inflation and £500 on to typical annual gas and electricity bills.
Such a rise would particularly hit poorer families given that they spend more than twice as much of their budgets on energy as richer households.
Ruth Curtice, chief executive at the Resolution Foundation, said: “The immediate economic outlook for Britain is highly uncertain, with yesterday’s forecasts already looking out of date.
“This coming year is set to be a decent one for living standards, and a bumper one for poorer families, as wages and benefit support rise above the level of inflation.
“But a fresh energy price shock risks puncturing this good news.”
Global oil and gas prices jumped again on Tuesday.
The benchmark Brent crude oil contract settled up $3.66, or up 4.7%, at $81.40 a barrel, its highest level since January 2025.
European gas prices spiralled as much as 40% before paring gains, adding to a 40% jump on Monday.
Amid growing worries about inflation, stock markets were falling as investors were taking fright.
Treasury minister James Murray stressed that energy bills were due to come down £150 in April after Government intervention and that the price cap would last for three months.
“It’s early days on what’s happening in the Middle East,” he added on Sky News.
The Government could intervene with a rescue package to keep down bills but it would cost billions of pounds when the public finances are already tight.
Ms Reeves told MPs on Tuesday that her fiscal plan was “more necessary than ever before in a world of uncertainty” with the Iran conflict threatening economic stability.
But the Office for Budget Responsibility predicted that GDP will increase by just 1.1% in 2026, down from the 1.4% it forecast in November.
The watchdog upgraded its forecasts for 2027 and 2028 from 1.5% to 1.6%.
