As oil and gas prices soar against the backdrop of the war in Iran, the United States and Western exporters could find a new opportunity to fill the gap in the market.
As the conflict enters its sixth day on Thursday, here’s a closer look at the situation.
Why is a global oil and gas crisis escalating?
There are two main reasons: shipping through the vital Strait of Hormuz has been disrupted; and energy infrastructure in the Gulf countries has been attacked, affecting operations.
Strait of Hormuz
Shipping through the Strait of Hormuz between Iran and Oman, which carries a fifth of the oil consumed globally and about 20 percent of the world’s liquefied natural gas (LNG), came to a virtual halt after Iran attacked ships in the area earlier in the week in retaliation for the US and Israeli attacks, which began on Saturday.
Iran’s Islamic Revolutionary Guard Corps (IRGC) declared on Monday that the strait was “closed” and that any ship attempting to pass through the waterway would be “set on fire.”
The U.S.-flagged product tanker Stena Imperative was damaged by “aerial impacts” while docked in the Middle East Gulf, the ship’s owner, Stena Bulk, and its U.S. manager, Crowley, said in a statement Monday. The impact killed a shipyard worker.
The IRGC said it had attacked the Honduran-flagged Nova with two drones and left it burning in the Strait of Hormuz, Iranian news agencies reported Tuesday.
In total, at least five tankers were damaged, two people were killed and some 150 ships were stranded in the strait.
The disruption and fears of a prolonged shutdown have sent European oil and natural gas prices soaring, with Brent crude futures rising as much as 13 percent as the conflict triggers multiple oil and gas production shutdowns in the Middle East.
About 10 percent of the world’s container ships are currently stuck in wider jams, and cargo could soon start piling up at ports and transshipment centers in Europe and Asia, Jeremy Nixon, chief executive of the container ship Ocean Network Express, known as ONE, said on Monday.
The tankers are clustered in open waters off the coasts of major Gulf oil producers, including Iraq and Saudi Arabia, as well as LNG giant Qatar, according to ship tracking data from the platform MarineTraffic.
Energy infrastructure attacked
Qatar’s state-owned energy company and the world’s largest LNG producer, QatarEnergy, announced on Monday that it had stopped LNG production following Iranian attacks on its operational facilities in Ras Laffan and Mesaieed in Qatar.
Iranian officials have publicly denied targeting QatarEnergy.
Saudi Arabia shut down operations at its Ras Tanura plant, its largest domestic oil refinery, operated by Saudi Aramco, after a fire broke out at the facility, which authorities said was caused by debris from the interception of two Iranian drones.
Iran’s Tasnim news agency quoted an unnamed Iranian military source as saying: “The attack on Aramco was an Israeli false flag operation.” The source added that Israel’s goal was to “distract the minds of countries in the region from its crimes by attacking civilian sites in Iran.”
“Iran has frankly announced that it will attack all American and Israeli interests, installations and installations in the region, and it has attacked many of them so far, but Aramco facilities have not been among the targets of Iranian attacks so far,” the source told the agency.
How much oil and gas does the region produce?
The Strait of Hormuz carries about a fifth of the oil and LNG consumed globally from Gulf producers such as Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Qatar, which is the world’s third-largest LNG exporter.
Any disruption to cross-strait traffic affects gas markets in Asia and Europe.
The Middle East is also home to five of the world’s seven largest oil reserves. Almost half of the world’s oil reserves and exports come from the region.
After Venezuela, which has 303 billion barrels of oil reserves, Saudi Arabia has the second largest proven crude oil reserves in the world, estimated at 267 billion barrels. Iran has 209 billion barrels, Iraq has 145 billion barrels, the United Arab Emirates has 113 billion barrels, and Kuwait has 102 billion barrels.
In addition to crude oil, the Middle East is a global natural gas powerhouse, accounting for nearly 18 percent of global production and approximately 40 percent of the world’s proven reserves.
Who depends more on Middle East oil and gas?
Asia and Europe are highly dependent on oil and gas from the Middle East.
China, India, Japan and South Korea are the main buyers of crude oil that passes through the Strait of Hormuz. In 2024, these Asian countries cumulatively accounted for 69 percent of all Hormuz crude oil and condensate flows.
On Thursday, South Korea, which imports 20 percent of its gas from the region, said it could run out of LNG in nine days. South Korean President Lee Jae Myung has announced the creation of a 100 trillion won ($68.3 billion) stabilization fund to address rising energy prices.
“These are substantial losses for global energy markets and cannot be easily replaced,” Neil Quilliam, a fellow in the Middle East and North Africa program at Chatham House, based in the United Kingdom, told Al Jazeera.
Quilliam explained that countries that are part of the International Energy Agency (IEA), an autonomous intergovernmental organization based in Paris, such as the United States, China, India and Australia, generally possess strategic oil reserves and commercial stocks.
In the event of a major short-term disruption, these reserves can be tapped.
“The issue of production is another matter,” he stated. “So far, Iranian attacks on energy assets in the Gulf have not caused untold damage, so as long as production can return when the strait opens, markets will take comfort from that.”
What has happened to oil and gas prices?
Oil prices rose on Thursday.
Brent crude was up $2.35, or 2.9 percent, at $83.75 a barrel by 0850 GMT. U.S. West Texas Intermediate (WTI) crude oil rose $2.42, or 3.2 percent, to $77.08.
European diesel futures hit their highest level since October 2022 at $1,130.
Who wins with all this?
With energy production shut down or shipping prevented in the Middle East, the United States is now the world’s largest oil exporter. It is also the largest producer of LNG in the world.
Before stopping production, Qatar supplied LNG to buyers in Europe and Asia. QatarEnergy’s suspension of LNG production creates a huge gap that Western gas exporters, such as US companies such as ExxonMobil and Cheniere, could exploit. Australia, which ships about 11 billion cubic feet per day (bcfd), has some spot cargoes to fill the supply gap in Asia, Quilliam said.
However, US producers will not emerge completely unscathed from the overall rise in prices and increased production is not something that can be achieved overnight.
“The United States is largely insulated from rising oil prices as it is now the world’s largest crude oil exporter; however, it will import higher prices as the country imports refined products and that will be felt at the pump,” Quilliam said.
“The United States should be able to capitalize on the loss of Qatar’s LNG and absorb market share, although it would take months for companies to ramp up production to take advantage of the conditions and by then the crisis may well be over. In theory, the United States can benefit from the current disruptions, but much depends on the longevity of the war.”
While the United States is the world’s largest producer of LNG, its plants are operating at near full capacity, Quilliam said, and most cargoes are already under long-term contracts.
Global gas consumption is about 400 bcfd, energy analysts estimate. About 55 bcfd is LNG, and the United States, Australia and Qatar account for about 60 percent of global production, according to the International Gas Union. Most of that LNG is sold through long-term contracts.
Additionally, new U.S. production, which could come online soon, is unlikely to exceed 2 bcfd, well below the 10 bcfd gap left by Qatar, equivalent to about 80 million tons per year, according to Reuters calculations.
Could all this provide a boost to shadow fleet users?
Due to sanctions and other restrictions, a significant portion of oil and gas is now transported via a “shadow fleet” of tankers that operate outside normal regulatory oversight. Countries like Russia and Iran often sell oil this way.
“Russia is certainly benefiting from the loss of Saudi and Iranian crude reaching the markets and will increase the flow of crude exports to China and India, also at higher prices,” Quilliam said.
“At the same time, to stabilize markets, there will be little desire to impose sanctions against Russia and therefore its shadow fleet will be more active than usual.”
