Ongoing conflict in the Middle East continues to disrupt energy markets and block maritime supply routes, triggering a sharp spike in European natural gas prices. On Monday, benchmark gas futures surged by as much as 30%, extending their largest weekly gain since the energy crisis. Concurrently, international oil prices have surpassed the $100 per barrel mark, driven by production cuts from several major Middle Eastern oil producers and the continued closure of the Strait of Hormuz. US natural gas futures also climbed, reaching their highest level in a month. At the time of writing, the European benchmark, the Dutch front-month gas contract, was up nearly 17%, trading at 62.40 euros per megawatt-hour.

The conflict, now in its tenth week with no signs of abating, is not only introducing volatility into energy markets but also increasing inflationary pressures. The European gas market is in a particularly vulnerable position, having just depleted its reserves over the winter, leaving storage facilities nearly empty. This necessitates significant purchases of liquefied natural gas (LNG) this summer to replenish stocks. If oil and gas from the Middle East cannot be transported normally, Europe will be forced to compete with Asian buyers for limited global supply.

"Markets are gradually coming to terms with the reality of prolonged supply disruptions across the entire energy value chain," noted Florence Schmit, an energy strategist at Rabobank. "We anticipate these supply disruptions could last for approximately three months." While current prices remain far below the historic highs seen during the energy crisis—currently around 64 euros/MWh compared to a peak above 300 euros/MWh—the ripple effects of the conflict could still reshape the global gas market landscape.

Analysts at Morgan Stanley, led by Devin McDermott, suggested in a report that a halt to LNG production in major exporter Qatar could completely reverse some institutions' expectations from the start of the year for a market surplus in 2024. If production is suspended for more than a month, "a supply deficit would quickly emerge."

The Ras Laffan plant in Qatar, the world's largest LNG facility, appears to have its main infrastructure largely intact following an unprecedented shutdown last week. However, according to the country's energy minister, restarting and resuming deliveries could take several weeks or even months. After QatarEnergy suspended LNG and associated product production last week, it declared force majeure to affected buyers, impacting European clients such as Italy's Edison SpA and Poland's Orlen SA.

A team of analysts at Goldman Sachs, led by Samantha Dart, has raised their second-quarter price forecast for European gas to 63 euros/MWh from 45 euros/MWh, citing the potential for a prolonged disruption to Qatari exports. This forecast assumes Qatari LNG shipments will remain at zero until the end of March, with a gradual capacity recovery in April, a timeline significantly longer than previously anticipated.