Global energy prices are skyrocketing as the Iran crisis disrupts shipping, oil, and gas production, causing a ripple effect across the world. The U.S.-Israeli war on Iran has halted energy exports from the Middle East, with Tehran attacking ships and energy facilities, closing navigation in the Gulf, and forcing production stoppages from Qatar to Iraq. This conflict risks triggering a renewed spike in inflation, threatening to choke off economic recovery in Europe and Asia, regions that account for a significant portion of global oil and gas production.
The benchmark Brent crude oil contract surged by nearly 8% on Tuesday, reaching above $83 per barrel, its highest since July 2024. This surge follows a 15% increase since Friday. European gas prices TFMBMc1 soared as much as 40% before paring gains, adding to a 40% surge on Monday. Sugar, fertilizer, and soy prices have also risen, indicating a broader impact on global markets.
Iraq, OPEC's second-largest producer, may be forced to cut production by more than three million barrels per day in a few days if oil tankers cannot move freely to loading points, according to Iraqi oil officials. As of Tuesday, Iraq has already decreased production from the Rumaila oil field by 700,000 bpd and cut 460,000 bpd from the West Qurna 2 field.
Shipping at the Strait of Hormuz, a key artery for global oil and LNG supply, has been at a standstill for four days after Iran attacked five ships, choking off about 20% of the world's oil and LNG supply. Crude tanker transits through the strait fell to four vessels on March 1, compared to an average of 24 per day since January. Three of the four were Iran-flagged.
Hundreds of tankers loaded with oil and LNG are stranded near major hubs, such as the United Arab Emirates' port of Fujairah, unable to reach customers in Asia, Europe, and elsewhere. Some companies are attempting to find alternative routes, with Saudi oil giant Aramco trying to reroute crude to its western Red Sea port of Yanbu. However, sources warn that Aramco's pipeline has limited capacity and could be a target for Iran's allies.
On Tuesday, a fuel tank at Oman's Duqm commercial port was hit by a drone, and a fire broke out at the UAE's Fujairah, a key regional oil hub, slowing ship refueling and potentially shifting demand to other ports, including Singapore. Qatar shut down its liquefied natural gas facilities, which supply around 20% of global LNG exports, while Saudi Arabia suspended production at its largest domestic refinery.
The conflict has also impacted other regions, with Chinese refiners shutting units in response to the crude supply disruption. India, heavily dependent on Middle Eastern oil and gas, has started rationing gas supplies to industries after Qatar's production was halted. Rising gasoline prices in the U.S., a key political issue, pose risks for Trump and his party as they approach midterm elections.
In Europe, which is entirely dependent on imports for its oil and gas needs, the conflict has led to a scramble to replenish depleted stocks, with a reliance on U.S. gas increasing after shunning Russian gas post-2022. Shipping rates worldwide have reached an all-time high as the conflict intensifies and Tehran targets ships passing through the strait.
Western security experts are assessing Iran's remaining missile and drone stockpiles to gauge the intensity of its attacks. While Saudi Arabia, the UAE, Oman, and Kuwait have intercepted most missiles and drones targeting energy facilities, ports, and airports, concerns arise if their anti-drone and anti-missile stockpiles are depleted.
