Global oil and gas prices jumped on Tuesday as the US-Israeli war on Iran halted energy exports from the Middle East. This occurred with Tehran attacking ships and energy facilities, closing navigation in the Gulf and forcing production stoppages from Qatar to Iraq.
The benchmark Brent crude oil contract settled up $3.66, or up 4.7 per cent, at $81.40 a barrel. This marked its highest settlement since January 2025.
European gas prices soared as much as 40 per cent before paring gains, adding to a 40 per cent surge on Monday. Sugar, fertiliser and soy prices have all risen too.
The conflict risks triggering a spike in inflation that could choke off economic recovery in Europe and Asia if the war is prolonged. This region accounts for just under a third of global oil production and almost a fifth of natural gas.
Price rises could also pose a political threat to US President Donald Trump and his Republicans in November midterm elections. Trump said the US Navy could begin escorting oil tankers through the Strait of Hormuz, a crucial oil shipping lane, if necessary.
He added he had ordered the US International Development Finance Corporation to provide political risk insurance and financial guarantees for maritime trade in the gulf. It was one of the administration’s most aggressive steps to try to contain soaring energy prices as conflict escalates in the Middle East.
Iraq, OPEC's second-largest producer, said it may be forced to cut production in a few days by more than three million barrels per day if oil tankers cannot move freely to loading points. This information was provided according to two Iraqi oil officials.
As of Tuesday, Iraq has decreased production from the Rumaila oil field by 700,000 bpd. They also cut 460,000 bpd from the West Qurna 2 field, the officials said.
Traffic through the Strait of Hormuz was effectively closed for a fourth day after Iran attacked five ships. This choked off the artery accounting for about 20 per cent of global oil and LNG supply.
Crude tanker transits through the strait fell to four vessels on March 1, the day after hostilities broke out. This is compared to an average of 24 per day since January, according to Vortexa vessel-tracking data.
Three of the four vessels were Iran-flagged. Hundreds of tankers loaded with oil and LNG are stranded near big hubs, such as the United Arab Emirates' port of Fujairah.
These vessels are unable to reach customers in Asia, Europe and elsewhere. Some companies are seeking alternative routes.
Saudi oil giant Aramco is attempting to reroute some crude to its western Red Sea port of Yanbu. However, sources, including buyers, traders and analysts, said the east-west pipeline had limited capacity and could become a target of attacks.
On Tuesday, a fuel tank at Oman’s Duqm commercial port was hit by a drone. A fire also broke out at the UAE's Fujairah, one of the key regional oil hubs.
This slowed ship refuelling and is potentially shifting demand to other ports including Singapore. On Monday, Qatar shut its liquefied natural gas facilities, some of the world's biggest.
These facilities supply around 20 per cent of global LNG exports. Saudi Arabia suspended production at its largest domestic refinery.
Israel and Iraq's Kurdistan also shut chunks of their gas and oil output. Elsewhere, Chinese refiners have started to shut units in response to the conflict's impact on crude supply.
India is one of the most dependent countries on oil and gas from the Middle East. The country has said it has started to ration gas supplies to industries after Qatar production was shut down.
In the US, where gasoline prices are a key political pressure point, the cost jumped above $3 per gallon for the first time since November. This happened just weeks after Trump touted his achievements in bringing prices down to $2.
Higher prices at the pump mark a major risk for Trump's Republicans ahead of midterm elections. Most Qatari LNG flows to Asia, but some also flows to Europe.
Europe depends entirely on imported oil and gas. The region is expected to scramble to replenish stocks, depleted by a cold winter.
Europe will need to rely more on US gas after shunning Russian gas after its 2022 invasion of Ukraine. Shipping rates have jumped to an all-time high as the conflict has intensified.
Tehran has targeted ships passing through the strait. This has caused significant disruption to maritime trade.
Western security experts are seeking to assess how many missiles and drones Iran has left. They want to determine if Iran can keep up the intensity of its attacks.
Saudi Arabia, the UAE, Oman and Kuwait have so far managed to intercept most missiles and drones targeting energy facilities. These targets include ports and airports.
However, worries mount if their anti-drone and anti-missile stockpiles are running low. Security experts continue to monitor the situation closely.
(Reporting by Yousef Saba, Ahmed Elimam; additional reporting by Ahmad Ghaddar and Alex Lawler in London and Nidhi Verma in Delhi; Writing by Dmitry Zhdannikov and Nina Chestney; Editing by Sharon Singleton and David Gregorio)
