Middle East situation escalation triggers energy market: Hormuz Strait transportation blocked, European natural gas futures surged 25%

Due to concerns over a major disruption in global energy supply caused by the conflicts in the Middle East, European natural gas prices have surged. Following a virtual halt in oil tanker transportation in the Strait of Hormuz over the weekend, benchmark natural gas futures prices surged by 25% at one point, marking the largest single-day increase since August 2023. This narrow waterway is a crucial passage for global energy transportation, carrying around 20% of the world's liquefied natural gas exports. International oil prices also saw a significant surge. The current situation could pose the most serious challenge to the natural gas market since the disruption in global energy trade following the Russia-Ukraine conflict four years ago. While Asian countries are the main buyers of liquefied natural gas (LNG) exports from the Middle East, any supply disruptions will intensify competition for alternative supplies, thereby raising global natural gas prices, including those in Europe. Europe is particularly vulnerable. Its natural gas inventories are currently at unusually low levels, and it needs to import a large amount of LNG this summer to replenish stocks before the next winter. Goldman Sachs warned that if shipping through the Strait of Hormuz is interrupted for a month, European gas prices could more than double. Last weekend, the United States and Israel launched attacks against Iran, escalating the conflict. Tehran subsequently launched retaliatory strikes against several countries. LNG tankers that were supposed to load in Qatar and the UAE now appear to have been delayed or rerouted. Additionally, Israel has shut down some gas fields, prompting major importing country Egypt to seek more LNG shipments. Iran has stated that it has no intention to close the Strait of Hormuz, but ships have been avoiding the waterway since the outbreak of conflict last Saturday. Qatar has announced a temporary suspension of all maritime traffic. At the time of writing, the European natural gas benchmark the Dutch near-month futures price has risen by 22%, reaching 38,954 euros per megawatt-hour.