Nowhere on the planet is the energy supply greater than the Arabian Gulf.
This is the great contradiction that has haunted and supported this region for decades; That’s part of the reason why so many nations around the world are interested in what’s going on there – and it’s the main reason War in the Gulf Very dangerous for global growth.
It’s tempting to assume that it’s 2026 and not 1976, when oil prices will no longer matter. And it is certainly true that oil’s direct contribution to global gross domestic product is significantly lower today than it was 50 years ago. However, disruption of the hydrocarbon supply from the Gulf is of greater importance today for two reasons.
Latest Markets: Key developments as war grips the Middle East
First, we are not just talking about oil. We are talking about fertilizers (derived from natural gas). We are talking about plastics (from many petrochemicals produced from gas and oil). We’re talking about composite materials used to make fuselages in the latest passenger jets and Formula One cars. It all starts with pumping oil and gas from underground. And nowhere else on the planet are the largest reserves of those hydrocarbons.
That’s point number one. Point number two is that most of those hydrocarbons have to exit the Gulf through a single, narrow maritime corridor known as the Strait of Hormuz. And since the strait is bordered by Iran in the north, it raises significant questions about how easily we can procure these essential ingredients for human civilization in the future.
20% of global oil and gas exports will pass directly through Hormuz in 2024
Point number three is that there’s also a big question mark about whether we’ll be able to get it off the ground in the first place. The biggest market mover today was the news that Qatar was closing the Ras Laffan facility. Some have heard that the Ross Luffon or North Field, gas reservoir is plugged. But Ras Laffan is the largest gas terminal on the planet and the North field is the largest gas field. Actually, it’s more. It is the single largest source of energy anywhere – bigger than any oil field or any uranium mine.
Read more:
What are the dangers of petrol prices?
Why is the Strait of Hormuz so important?
All of this helps explain why gas prices jumped 50% on the news. Most of Qatar’s gas now goes to Asia but many countries, including the UK, are expected to increasingly rely on Qatar for liquefied natural gas in the coming years. Now, though, there’s a huge question mark over that supply — not to mention when liquefied natural gas tankers will be able to safely pass through the Strait of Hormuz when Ross Laffan starts pumping it again.
Now, what this means for the UK economy is still unclear. If gas prices come back down quickly, the impact on bills will be minimal. Wholesale prices remain below their 2022 level, despite today’s jump. However, it will have a bigger impact on Europe and the UK going forward. After recovering from the energy price shock of recent years, there is not the slightest chance that we will be stuck in another one.
In short, we should all watch events in the Gulf with real concern.
