Important points
Global oil markets are facing a worst-case scenario as the war between the US and Iran engulfs the Middle East with no clear exit, raising the risk of prolonged supply disruptions that could slow the global economy. Tanker traffic through the Strait of Hormuz, the world’s most important chokepoint for oil transport, has been halted as shipowners take precautions. According to energy consulting firm Kpler, about a third of the world’s total seaborne oil exports will pass through the strait in 2025. The Islamic Republic expanded its retaliatory attacks to energy facilities in the region. Qatar suspended liquefied natural gas production on Monday after two drones attacked key facilities. About 20% of the world’s LNG exports come from the Gulf, primarily Qatar, through the strait. “Our base case assumed that the possibility of an unprecedented disruption remains unlikely. That assumption has failed,” Natasha Kaneva, head of global commodity research at JPMorgan, told clients in a note on Sunday. Kaneba said the war resulted in a near-total halt to shipping through the strait for the first time in modern history. Oil prices calmed more than 6% on Monday after surging more than 12% earlier in the day. European natural gas futures soared more than 40%. Prices could rise further depending on how long the war lasts and whether Iran targets energy infrastructure in the Persian Gulf. Patrick de Haan, head of petroleum analysis at GasBuddy, said U.S. motorists can expect gas prices to start rising today or tomorrow. De Haan said motorists should expect pump rates to increase by an average of 10 to 30 cents a gallon next week. Oil and Gas Price Scenario Francisco Branch, a commodity strategist at Bank of America, said Brent prices could rise above $100 a barrel and European natural gas prices could top 60 euros ($70.17) per megawatt hour if Tehran’s regime takes a hard line and attacks nearby energy facilities. Branch said prolonged disruption in the Strait could push Brent prices up by $40 to $80 a barrel. If the war continues for more than three weeks, stranded barrels will accumulate, depleting Gulf countries’ storage capacity and forcing them to halt production, Kaneva said. Under this scenario, Brent, the global benchmark for oil prices, could reach $120 per barrel, JPMorgan analysts said. President Trump said Monday that the war would likely last up to five weeks, but would continue as long as necessary to achieve U.S. objectives. Earlier, the White House said Iran was ignoring U.S. warnings to abandon efforts to rebuild its nuclear program after last year’s U.S. attack, and that Tehran was developing a ballistic missile program that would “protect its nuclear weapons program.” Michael Xue, a research analyst at Deutsche Bank, said in a note to clients on Monday that Brent could soar toward $200 a barrel if Iran succeeds in completely blocking the Strait by deploying sea mines, anti-ship missiles and other weapons. $100 per barrel The last time oil prices reached $100 per barrel was after Russia invaded Ukraine in February 2022. Through June, U.S. gas prices hit an all-time high, averaging $5.016 per gallon nationwide, according to the motoring group AAA. Kaneba said the collapse of the Islamic Republic would also pose serious risks to oil supplies. The United States and Israel killed Iranian head of state Ayatollah Khamenei over the weekend. Tehran’s regime faced massive protests in January that it brutally suppressed, leaving thousands of people dead. “Amid significant domestic polarization and rising ethnic tensions, the main risks remain institutional collapse and the possibility of civil war,” Kaneba told clients. In such a scenario, Iran’s production of more than 3 million barrels per day would be at risk. Kaneba said oil prices typically spike by more than 70% when there is a change of government in a major oil-producing country. Oil at $60-$70 per barrel If the fighting ends quickly, oil prices could return to the $60-$70 per barrel range, Branch said. “If hostilities end within the next few days under newly appointed leadership, the tensions could have only a minor impact on oil markets,” he said. However, the United States and Iran appear to be at odds. Iran’s security chief, Ali Larijani, has rejected negotiations with the United States, saying the joint U.S.-Israel attack had dragged the entire region into an unnecessary war. “We will not negotiate with the United States,” a former adviser to the late supreme leader said in a social media post.
