Hormuz closure sends oil to 20-month high

• Brent up 17 percent this week
• Gas prices at 38-month high
• Lasting disruption ‘partially priced in’

Oil prices surged to a 20-month high on Tuesday and European gas prices extended gains to more than double this week as the Strait of Hormuz remained effectively closed to commercial shipping.

Iranian authorities have launched wide-reaching retaliatory strikes across the Middle East following Saturday’s US-Israeli killing of supreme leader Ayatollah Ali Khamenei, targeting military and civil infrastructure in several countries including Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain and Israel.

Brent crude was up 8.4 percent at $84 per barrel as of 11:23 GMT on Tuesday, surging to its highest level since July 2024 and taking its gains this week to about 17 percent, or $12 per barrel.

Marine tracking websites on Tuesday showed few oil tankers near the Strait of Hormuz, a narrow channel bordered by Iran to the north and Oman’s Musandam peninsula to the south through which about one-fifth of global oil supplies transit.

About 20 percent of global liquefied natural gas (LNG) supplies also pass through the strait, nearly all of which is from Qatar, the world’s third-largest LNG exporter.

State-owned Qatar Energy on Monday halted LNG production after Iranian drones struck Ras Laffan, which is home to the country’s LNG production facilities.

As of 11:13 GMT on Tuesday, Qatar Energy had not restarted LNG production, while the company said it had also halted production of many downstream products including urea, polymers, methanol and aluminium.

These disruptions have panicked gas buyers. Prices vary by continent. European gas prices were up 48 percent at 10:59 GMT, trading at €64.38 per megawatt hour, a 38-month high having ended last Friday at €31. Henry Hub, the US gas benchmark, is up 8.5 percent this week.

Europe bought nearly 22 percent of Qatari LNG exports in 2024, according to AGBI calculations based on the most recent World Bank data.

“The natural gas market seems more vulnerable to attacks in the Middle East, given that supply comes from fewer facilities,” said Norbert Rücker, head of economics at Swiss bank Julius Baer. 

“Natural gas has also in the past been the more nervous, emotional and volatile energy market compared to oil. However, the big picture of a liquefied natural gas wave crushing prices remains in place, currently simply overcast by geopolitics.”

Qatar shipped 77.2 million tonnes of LNG in 2024, or 19 percent of the global total of 411 million tonnes, the International Gas Union estimates. Only the United States (88.4 million tonnes) and Australia (81 million tonnes) exported more.

“A full and lasting disruption would be serious, and this seems to be partially priced in by the market,” said Rücker.

“How much are global natural gas supplies at risk, especially with storage depleted after the winter heating season? There are a few offsetting factors.”

For example, the start of spring in the northern hemisphere usually causes renewable electricity generation to increase and natural gas demand to drop, said Rucker. These trends provide time to “weather” a disruption to Middle East supplies and to refill storage with imports later this year.

Also, additional US gas production, slated to begin in 2026, should ease supply constraints, he said.

Most importantly, higher energy prices should “warrant sufficient security escorts to revive trade through the Strait of Hormuz as the conflict progresses”, Rücker said.