Risk of gas crisis as Iran launches missiles at US military bases
Iran has launched a barrage of missiles at US military bases in Qatar, in response to America’s bombing raids over the weekend. City analysts have been on high alert over the potential economic fallout, with a warning that gas prices could more than double if shipping through the Strait of Hormuz is blocked.
Analysts fear the UK economy could suffer the collateral effects from a spike in European gas prices if Qatari tankers carrying liquefied natural gas become stranded, with oil prices already spiking to $79 a barrel on Monday afternoon.
Capital Economics’ chief commodities economist David Oxley said oil prices could surge to around $150 in the event of the Strait of Hormuz’s closure while European gas prices could “feasibly spike” to as high as 100 euros per MWh, which would be equivalent to around £85/MWh.
Goldman Sachs analysts said prices could rise to levels that “triggered large natural gas demand destructions during the 2022 European energy crisis” in a stark warning to major economies around the world.
Any surge in gas prices would likely lead to higher inflation across the global economy, Peel Hunt’s Kallum Pickering pointed out, though it would not be as severe as the price shock seen in the aftermath of Russia’s invasion of Ukraine when gas prices rocketed past £100/MWh, sparking a sharp rise in price growth.
“More than a fifth of global oil and gas flows through the Strait of Hormuz—which is on Iran’s southern coast and just 21 miles wide at its narrowest point—and thus could be a viable target for Iran,” Pickering said.
“An attempt by Iran to attack or mine the Strait would represent a much more severe economic risk scenario, causing a significant global supply and price shock, depressing global GDP and pushing up inflation.
“Central banks would have a difficult time easing monetary policy aggressively in a downside scenario in which global oil and gas supplies are badly disrupted and inflation spikes.”
European gas prices hinge on diplomatic efforts
The alarming projections will raise the stakes of global diplomacy efforts to de-escalate the conflict and persuade Supreme Leader Ali Khamanei to keep the Strait of Hormuz off the south coast of Iran open, with the local parliament backing a move to shut down the shipping lane.
Donald Trump blamed traders for a recent surge in oil prices as he said on a Truth Social post: “YOU’RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON’T DO IT!”
He also appeared to raise the possibility of a regime change in Iran in signs the conflict is not close to subsiding in the short term.
UK officials have begun evacuation flights for British nationals in Israel while others in Qatar have been warned to take shelter “until further notice”.
Qatar also closed its airspace temporarily on Monday evening over fears a US military base would be struck by Iran.
Rachel Reeves said the government, which was informed about Trump’s strikes on Iran’s nuclear sites on Sunday morning, supported a de-escalation of the conflict in part due to fears about its impact on the UK economy, with analysts highlighting the UK economy remained exposed to gas price shocks.
“We have seen increases in oil prices in recent days and weeks, which of course will have an impact on the UK economy. We recognise the challenge that businesses and families face with energy costs,” she said.
“Of course, higher oil prices will have implications for the UK economy. One of the reasons we want de-escalation is to ensure that oil continues to flow and to ensure that that key route, both for oil and for wider trade – the Strait of Hormuz – continues to be open.”