Iran Crisis Triggers Energy Shock: Global Oil and Gas Prices Soar, Maritime Transport Paralyzed

Source: Adobe Stock/alexyz3d

The global oil and gas markets witnessed a sharp spike this past Tuesday as the war involving the US, Israel, and Iran stalled energy exports from the Middle East. A series of attacks by Tehran targeting commercial vessels and energy facilities has forced the Gulf to shut down shipping lanes, simultaneously leading to production halts across multiple nations from Qatar to Iraq.

Energy Price Shock and Macro Risks

The global commodities market immediately reacted violently to the risk of supply chain ruptures from a region that accounts for nearly one-third of the world's oil production and almost one-fifth of its natural gas:

●    Crude Oil: The global benchmark Brent crude contract closed up $3.66 (or 4.7%), settling at $81.40/barrel. This marks the highest closing price since January 2025.

●    Natural Gas and Other Commodities: European gas prices spiked by as much as 40% at one point before paring gains, following a previous 40% surge on Monday. Commodities such as sugar, fertilizers, and soybeans also saw simultaneous price increases.

●    US Gasoline Prices: The cost of gasoline in the US surpassed $3/gallon for the first time since November, creating a major political risk for President Donald Trump and the Republican Party just ahead of the November midterm elections.

The conflict carries the risk of triggering a fresh wave of inflation, which could strangle the economic recovery in Europe and Asia if the situation persists.

Strait of Hormuz Bottleneck, Ocean Freight Hits Historic Peaks

Traffic through the Strait of Hormuz - the vital chokepoint for approximately 20% of global oil and Liquefied Natural Gas (LNG) supplies - has been effectively closed for a fourth consecutive day after Iran attacked five vessels.

●    According to vessel tracking data from Vortexa, the volume of crude tankers passing through the strait plummeted to just 4 vessels on March 1 (the day hostilities broke out), compared to a daily average of 24 vessels since January. Three of these four vessels were flying the Iranian flag.

●    Hundreds of oil and LNG tankers are currently stranded near major transshipment hubs like the Port of Fujairah in the United Arab Emirates (UAE), unable to reach buyers.

●    Ocean freight rates have skyrocketed to all-time highs as security risks mount.

In an effort to rein in energy prices, President Trump stated that the US Navy could begin escorting tankers through the Strait of Hormuz if necessary. Concurrently, he instructed the US International Development Finance Corporation (DFC) to provide political risk insurance and financial guarantees for maritime trade in the Persian Gulf.

Middle East Production Chains Severely Curtailed

The disruption of logistics supply chains has forced top energy-producing nations to scale back operations:

●    Iraq (OPEC's 2nd largest producer): Iraqi oil officials warned the country might be forced to cut production by over 3 million barrels per day (bpd) in the coming days if tankers cannot move freely to loading terminals. As of Tuesday, Iraq had already cut 700,000 bpd from the Rumaila oil field and 460,000 bpd from the West Qurna 2 field.

●    Qatar: The nation has shut down its massive LNG facilities (which supply about 20% of global LNG exports).

●    Saudi Arabia: Suspended production at its largest domestic refinery. Energy giant Aramco is attempting to divert some crude oil via the East-West pipeline to the Yanbu port on the Red Sea, but this pipeline has limited capacity and is highly vulnerable to attacks.

●    Infrastructure Damage: A fuel storage tank at the commercial port of Duqm (Oman) was struck by a drone, while a fire that broke out at Fujairah (UAE) has slowed vessel refueling (bunkering) processes, potentially pushing bunkering demand to other ports like Singapore.

Global Domino Effect

The supply chain ruptures in the Middle East are cascading globally:

●    In China, refineries have begun shutting down processing units due to the impact on crude oil supplies.

●    In India, a nation heavily reliant on Middle Eastern energy, authorities have started rationing gas for industries.

●    Europe is expected to struggle to replenish reserves that were already depleted after a cold winter, and will have to rely more heavily on US gas imports.

Currently, Western security experts are assessing Iran's stockpile of missiles and drones. Although Saudi Arabia, the UAE, Oman, and Kuwait have so far successfully intercepted most attacks targeting energy infrastructure, concerns will mount significantly if their air defense arsenals are depleted.

See more:

• Hormuz Crisis: 10% of Global Container Fleet Stranded, Risking Severe Supply Chain Disruption
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Source: Phaata.com (According to Reuters)

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