Natural Gas Prices Skyrocket Amid Middle East Energy Attacks

The Surge in Natural Gas Prices

Natural gas prices in Europe have experienced a significant surge, climbing as much as 35% on Thursday. This sharp increase is attributed to the recent attacks on critical energy infrastructure in the Middle East by Iran and Israel. These strikes have targeted some of the region’s most vital gas facilities, causing damage that could take years to repair.

Escalation of Conflict and Energy Industry Concerns

The ongoing conflict between the U.S. and Israel has brought to light fears within the energy industry about potential long-term damage and shortages in global energy supplies. Analysts warn that this conflict could lead to a severe gas-crisis scenario. Saul Kavonic, an energy analyst at MST Financial, stated, “Even once the war ends, the disruption to LNG supply could last for months or even years.”

Iran’s attack on the Ras Laffan liquefied natural gas facility in Qatar, the world’s largest LNG complex, was followed by an Israeli strike on Iran’s South Pars gas facilities. The damage to Ras Laffan is expected to reduce Qatar’s LNG exports by around 17% for three to five years.

Impact on Qatar and Global Markets

QatarEnergy CEO Saad al-Kaabi expressed shock over the attack, noting that it was unexpected, especially from a neighboring Muslim country during Ramadan. He mentioned that the state-owned gas company may need to declare force majeure on long-term contracts with Belgium, China, Italy, and South Korea.

The surge in gas prices in Europe led to a rise of up to 35%, while oil prices jumped as much as 10% before stabilizing. This escalation in conflict has raised concerns among analysts about the broader implications for the global energy market.

Sharp Escalation in the Conflict

Analysts believe that the attacks on South Pars and the subsequent strike on the Ras Laffan plant mark a significant escalation in the conflict. Iran’s aerial attacks have already targeted a refinery in Saudi Arabia, forced the UAE to shut down gas facilities, and caused fires at two Kuwaiti refineries. U.S. President Donald Trump warned of retaliation if these actions continued.

Charu Chanana, chief investment strategist at Saxo in Singapore, noted that this latest escalation feels like a turning point for markets. She explained that the conflict is no longer just about military headlines or the closure of the Strait of Hormuz but is now affecting the core of the global energy system. The growing risk of stagflation is unsettling markets, according to her.

Euro Zone Inflation Expected to Rise

The European Central Bank (ECB) acknowledged that the war in Iran would have a “material impact” on near-term inflation. Financial markets anticipate that euro zone inflation could climb close to 4% over the next year and take years to return to the ECB’s 2% target. Traders are betting on two or three rate hikes by December, expecting the ECB to avoid another inflation spike after the Russia-Ukraine conflict.

The yield on the 2-year U.S. Treasury note reached its highest level in nearly eight months, reflecting expectations of interest rate increases. An International Monetary Fund official estimated that every 10% increase in oil prices could add about 40 basis points to global inflation and reduce economic output by 0.1% to 0.2%.

Calls for Stability and Moratorium

Britain, France, Germany, Italy, Japan, and the Netherlands have called for an immediate moratorium on attacks on oil and gas facilities. They are working with energy-producing nations to stabilize markets, according to a joint statement.

Trump warned Iran against retaliating by attacking Qatari LNG facilities again, threatening to “massively blow up the entirety of the South Pars Gas Field” if they did so. Qatar shares the South Pars gas field with Iran.

Iran’s Response to Potential Attacks

Iran has vowed to show “zero restraint” if its infrastructure is attacked again, according to Foreign Minister Abbas Araqchi. Israeli Prime Minister Benjamin Netanyahu stated he would not attack any more Iranian energy facilities, as reported by Trump.

Gas prices in Europe have doubled since late February before the U.S. and Israel launched attacks on Iran. Saudi Arabia’s Red Sea port of Yanbu faced brief disruptions due to a drone incident near the Aramco-Exxon refinery, SAMREF. The port serves as the only export outlet for the world’s largest oil exporter after Iran blocked tanker traffic from the Gulf via the Strait of Hormuz.

Kuwait Petroleum Corp’s Mina al-Ahmadi and Mina Abdullah refineries were also targeted by drones, resulting in fires. The UAE shut its Habshan gas facilities after intercepting missiles, with no injuries reported. Authorities responded to an incident at the Bab oilfield caused by debris from intercepted missiles.