BREAKINGVIEWS-Iran chaos is issue for gas as much as oil market

By Yawen Chen

LONDON, March 2 (Reuters Breakingviews) - The Strait of Hormuz does not have to be formally closed to disrupt global energy. Shipowners, insurers and traders can mess up the channel at the end of the Arabian Gulf through which a fifth of the world’s oil and gas pass on their own. Even though Iran says it has not blocked the narrow waterway after U.S. and Israeli strikes killed Supreme Leader Ayatollah Ali Khamenei on Saturday, soaring war-risk premiums and security fears as tankers are hit have made transit increasingly unattractive. While the world understandably focuses on what this means for oil, the impact on gas prices may be just as important.

Oil markets are treating the disruption as temporary. Brent near $80 a barrel - roughly 10% above its level on Friday - implies that traders are pricing in a halt lasting only about a month, Goldman Sachs analysts reckon. Their relative calm is based on the lack of major attacks on either Iranian or Gulf economies’ oil facilities, plus the fact that China, the main destination for Gulf exports, has been stockpiling aggressively. Meanwhile a sustained spike in fuel costs would be awkward for President Donald Trump ahead of U.S. midterm elections, potentially encouraging him not to extend the war. Finally, Saudi Arabia and other big producers’ 3.7 million barrels a day of global spare capacity can offset the impact of a month-long hiatus, and they can also re-route some crude through pipelines that avoid the Strait.

Yet spare capacity is not much help if it can’t be moved outside the Gulf. The Red Sea attacks showed how insurance costs and security fears can curtail shipping without any formal blockade, and Trump said on Sunday the war itself could last four weeks. Given Goldman’s rule of thumb that a one-million-barrel daily disruption for one year hikes prices by $8 a barrel, the longer this drags on the easier it will be for crude to exceed the $100 a barrel they hit in 2022 after Russia invaded Ukraine.

Gas markets look even less encouraging. Unlike oil, where investors had already positioned for an Iran shock by placing an unusually large number of bets on the price rising, European gas prices have been held down by expectations of rising U.S. liquefied natural gas (LNG) supply. Because Asian LNG prices tracked by the Japan Korea Marker move in tandem with Europe as both regions compete for cargoes, shortages can create a bidding war. About 80 million tonnes a year of LNG, nearly one-fifth of global supply and largely from Qatar, transits Hormuz. When Qatar said on Monday it was halting LNG production due to attacks on its LNG facilities, prices of gas contracts at Europe’s Title Transfer Facility (TTF) hub jumped and are now over 30% above their Friday level.

At 42 euros per megawatt-hour, TTF prices remain far below 2022, when they exceeded 100 euros per MWh. Still, Europe has more to lose from gas than oil. The continent replaced much of its Russian pipeline supply with LNG, leaving it dependent on seaborne cargoes whose prices can be volatile. A one-month disruption could tighten northwest European storage by the equivalent of 8% of capacity and push prices toward 74 euros per megawatt hour, Goldman estimates – a level that was high enough to force big German industrial companies like BASF to curb production during the 2022 energy crisis. All of which suggests those hunting for the true fallout from the latest Gulf conflict shouldn’t stop at oil.

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CONTEXT NEWS

The United States and Israel launched strikes on Iran on February 28, which President Donald Trump said would end a security threat to the United States and give Iranians a chance to topple their rulers.

Iran’s Supreme leader Ayatollah Ali Khamenei died during the strikes on February 28.

Amid the conflict, OPEC+ agreed on March 1 to an oil output boost of 206,000 barrels per day for April.

More than 200 vessels including oil and liquefied gas tankers have dropped anchor outside the Strait of Hormuz, Reuters reported citing shipping data on March 1. Three tankers were damaged and one seafarer was killed in attacks on March 1 in Gulf waters.

Brent crude futures rose to as much as $82.37 a barrel after market open on March 1, the highest since January 2025, before retreating to be up $5.41, or 7.4%, to $78.28 by 0605 GMT on March 2.

European natural gas futures trading at the Title Transfer Facility (TTF) hub rose by more than 20% to approximately 39 euros per MWh on March 2.