The ongoing conflict in the Middle East is shaking up global energy markets, leaving investors anxious about the future. Since the recent attacks by the US and Israel on Iran, oil and gas prices have surged while stock markets have taken a hit.
On Monday, Brent crude oil prices jumped nearly 13% initially, settling just above $80 a barrel. In Europe, natural gas prices soared over 50%, marking the fastest rise since the Ukrainian war started. Much of this turmoil centers around the Strait of Hormuz, a crucial route for about 20% of the world’s oil supply. Iran’s Revolutionary Guards warned they would act against any ships trying to pass through this vital waterway.
Amid these threats, tanker traffic has come to a standstill as shipping companies panic over safety and insurance costs. Major marine insurers like Gard and Skuld announced they would stop providing war risk coverage starting March 5, forcing shipping firms to find new, likely more expensive, policies. Over 150 vessels remain anchored in the strait, limiting oil and gas supply globally.
The risk of further Iranian strikes on energy targets raises concerns. Recently, Saudi Aramco had to shut down its largest oil refinery after a drone attack. In Qatar, state-run QatarEnergy halted liquefied natural gas (LNG) production due to strikes. However, some analysts believe the market may temporarily absorb these disruptions.
Bridget Payne, an energy forecaster at Oxford Economics, indicated that Iran can’t sustain long-term disruptions. She projected Brent crude might average around $79 a barrel soon, as other supply sources step in to fill the gaps.
Asian economies are particularly vulnerable to rising energy prices, with a significant portion of their oil and gas imports coming from this region. According to the U.S. Energy Information Administration, in 2024, Asia received 84% of crude oil and 83% of LNG flowing through the Strait. China, in particular, relies heavily on these imports but could manage even if Iranian oil output drops since it accounts for only 11% of its total crude imports.
Europe finds itself in a tighter spot, as it is more exposed to disruptions than the U.S. The euro has weakened against the dollar due to worries over rising inflation caused by energy shortages. George Saravelos from Deutsche Bank noted that the current supply shock acts as a tax on European consumers. The European gas benchmark saw a sharp increase, underscoring the urgency of the situation.
In summary, while immediate fears dominate the market, some experts remain cautiously optimistic, believing the impact will be felt but not catastrophic. The balance of power in energy trade is shifting, which will undoubtedly affect various economies worldwide as the situation in the Middle East continues to evolve.
For more on the economic impact of global conflicts, you can check the U.S. Energy Information Administration and stay updated on market trends.
