Energy Secretary, Ed Miliband warned the government “will not tolerate” energy firms profiteering from the latest surge in global oil prices, triggered by conflict in the Middle East.
Oil prices have climbed sharply in recent days raising fears the shock could feed through into petrol heating oil and wider energy costs.
Ministers say the Competition and Markets Authority is now on “high alert” to prevent unjustified price rises at the pump.
Miliband told the BBC: “It’d be completely unacceptable for anyone to use this crisis to rip people off. We will not tolerate unfair practices price gouging.”
The watchdog has the power to investigate markets and impose fines if companies are found to be exploiting the situation.
The government is also considering further action if the conflict continues to push energy costs higher.
Miliband did not rule out extending the freeze on fuel duty or introducing additional support for households if prices continue to rise.
Fuel duty is currently frozen but is scheduled to increase in September.
The Energy Secretary said the Treasury had previously shown a “willingness to intervene” when energy bills surged.
Rising prices are already being felt in some parts of the market with heating oil costs increasing sharply and petrol prices beginning to climb.
Rachel Reeves and Miliband are due to meet petrol retailers to warn against excessive pricing.
The chancellor recently highlighted wide differences in pump prices ranging from £1.27 to £1.80 per litre.
At the same time ministers are facing renewed debate about the UK’s long term energy strategy.
Some industry figures have called for new North Sea oil and gas exploration to boost supply. But Miliband rejected that argument saying new licences would not reduce bills.
“New exploration licences in the North Sea will not take a penny off people’s bills,” he said.
Instead he argued the crisis reinforced the need to move away from fossil fuels.
“We’ve got to have clean homegrown power that we control,” he said.
“That’s the biggest long term lesson of this crisis.”
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