The escalating conflict in the Middle East is triggering the most severe shock to global energy markets in years. Military strikes by the United States and Israel against Iran entered their seventh day on Friday, March 6. Iran has stated it is prepared for a prolonged war and is developing new weapons.
The ongoing intensification of hostilities has driven Brent crude oil to surge as much as 12% intraday to $94.41 per barrel. West Texas Intermediate (WTI) crude experienced an even sharper increase, skyrocketing over 17% at one point to $92.37 per barrel.
NYMEX natural gas futures also climbed, rising as much as 9% during the session to $3.274 per million British thermal units.
Disruptions to commercial traffic through the Strait of Hormuz have become the core driver of this market movement. Citigroup estimates that a closure of the Strait could result in a daily global crude supply loss of 7 to 11 million barrels. Qatar's energy minister warned that if shipping disruptions persist, oil prices could reach $150 per barrel within two to three weeks.
The Strait of Hormuz, a critical chokepoint connecting the Persian Gulf to global markets, normally handles about one-fifth of the world's oil flow, with approximately 20 million barrels of crude and petroleum products transiting daily last year. Reports indicate that commercial passage through the Strait is "almost completely halted," citing reasons including security threats, insurance constraints, operational uncertainty, and physical interference.
Kuwait has begun reducing output at some oilfields due to full storage capacities, marking the latest signal of supply damage in the Middle East. Simultaneously, Saudi Arabia is diverting millions of barrels of crude to Red Sea ports to bypass the risks associated with the Strait of Hormuz. The Kingdom also significantly increased the official selling price for its flagship crude for Asian buyers in April, marking the largest hike since August 2022.
As the situation spreads, oil-producing nations are being forced to implement emergency measures. The Brent crude spread between the two nearest contracts has widened to a premium of $5.76 per barrel, compared to just 58 cents a month ago, indicating extreme tightness in immediate physical supply.
In Asia, supply pressures are being felt by major consumers. Japanese refiners have requested the government to tap strategic petroleum reserves. The Japanese government is reportedly evaluating the possibility but has not yet taken action. Market participants speculate that a coordinated release of emergency stocks by multiple countries would maximize the stabilizing effect on markets.
With the situation continuing to deteriorate, Wall Street institutions are beginning to price in extreme scenarios. Samantha Dart, co-head of Goldman Sachs' commodities research, stated in a media interview that if the low-flow state at Hormuz continues for another five weeks, Brent crude breaking above $100 per barrel is a possibility. However, Goldman's base case scenario still anticipates a gradual restoration of transit through the Strait and predicts Brent will average $76 per barrel in the second quarter.
The Qatar energy minister issued a stronger warning in an interview with the Financial Times, suggesting oil prices could climb to $150 per barrel within two to three weeks if tankers and commercial vessels remain unable to pass through Hormuz. The U.S. average retail gasoline price rose to $3.32 per gallon on Thursday, the highest level this year. ICE low-sulfur gasoil futures in Europe have surged over 50% this week, recording their largest weekly gain on record.
The liquefied natural gas (LNG) market is also facing direct impact. Earlier this week, Qatar shut down its LNG export facilities at Ras Laffan, the world's largest LNG export hub, following drone attacks by Iran. According to Bloomberg ship-tracking data and informed traders, at least two LNG carriers long-term chartered by QatarEnergy, the Al Thumama and the Mesaieed, have now been offered into the spot market; both vessels are currently located near the West African coast.
The accumulating pressure on supply is leading to speculation that the European Union may revisit discussions on banning Russian gas imports. Norway's Energy Minister, Terje Aasland, noted at a meeting in Oslo that while the EU has been clear about its desire to end dependence on Russian oil and gas, events of the past three to four days have made the situation difficult. Given the current geopolitical climate, he believes related discussions will restart. As previously reported, the 27 EU member states formally adopted regulations in late January to phase out imports of Russian pipeline gas and LNG.