Quick overview

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Concerns about a significant disruption to the world’s energy supplies sparked a surge in European natural gas prices after fighting throughout the Middle East.

 

Traders are keeping an eye on how long ship traffic through the Strait of Hormuz will be suspended. After tankers mostly stopped using the narrow waterway over the weekend, benchmark futures surged as much as 30 percent, the largest increase since August 2023.

About 25% of the world’s liquefied natural gas exports are transported via this important energy shipping route. Oil also experienced a sharp increase.

Since Russia’s invasion of Ukraine disrupted international energy trade four years ago, the situation could cause the biggest shock to gas markets.

Although the majority of LNG shipped from the Middle East is purchased by Asian nations, any disruption would increase competition for substitute supplies, driving up prices globally, including in Europe.

Europe is particularly vulnerable. Fuel inventories are abnormally low as the continent approaches the end of winter and gas consumption slows. Tom Marzec-Manser, director for Europe gas and LNG at Wood Mackenzie Ltd., stated that “the next key question for traders will be how long the strait remains closed.” The region must import significant amounts of LNG this summer in order to refill them before the upcoming heating season.

“The price will increase the longer it takes to reopen,” he stated. In an interview with the New York Times, US President Donald Trump stated that he plans to keep bombarding Iran for the next four to five weeks.

More than half of the biggest maritime insurance clubs in the world will no longer cover war risks for ships entering the Persian Gulf. Those wishing to load cargoes from within the Persian Gulf will probably be less willing to take on risk if the insurance is removed.