Energy markets across the globe are bracing for a protracted period of high fuel prices as the war in Iran disrupts the flow of vital oil and gas supplies, with fears of a protracted energy crisis even if the conflict is resolved in the near future.
The recent conflict, now a week old, has disrupted the flow of crude oil and natural gas from the Middle East, a region that provides a significant share of the world’s energy needs.
While energy markets are known to respond quickly to geopolitical tensions, the damage to energy facilities and logistics is likely to keep fuel prices high even if the conflict is resolved in the near future.
Brent crude oil prices have continued rising, and they have increased by about 24% this week, pushing the price above $90.
This has put the market on course for its biggest weekly gain since the early days of the COVID-19 pandemic.
This rise has, however, presented some political challenges for U.S. President Donald Trump, particularly considering the fact that midterm elections are around the corner.
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Traditionally, American voters are sensitive to energy price increases, and this has all occurred at a time when there is debate about the impact of military action in the Middle East on America.
According to energy analysts, the recent shift in the market is not driven by speculation about the conflict, but rather by other factors.
“The market is shifting from pricing pure geopolitical risk to grappling with tangible operational disruption, as refinery shutdowns and export constraints begin to impair crude processing and regional supply flows,” JPMorgan analysts noted on Friday.
At the heart of these disruptions, however, is the Strait of Hormuz, a narrow channel of water between Iran and Oman that plays a critical role as a transit route for oil exports from Gulf countries to global markets.
Iranian forces have been known to attack commercial vessels within this channel during the conflict, sparking security concerns that are now being felt as disruptions in these routes continue.
As a result, exports from various key oil-producing countries, including Saudi Arabia, United Arab Emirates, Iraq, and Kuwait, are being suspended or delayed.
Estimates from the industry suggest that up to 140 million barrels of crude oil meant for export to global refineries cannot reach their markets due to these disruptions, equating to about 1.4 days of global oil consumption.
As disruptions in these routes continue, they are now being felt across various sectors in the region.
With crude oil exports being curtailed, storage facilities meant for crude oil within these Gulf countries are nearing capacity.
As a result, various countries, including Iraq, are being forced to reduce production, with oil fields in Iraq already reducing production, as estimated by various analysts and experts within the sector.
Other producers may soon follow suit if the situation persists.
A source from one of the state oil companies in the region claimed that production cutbacks may spread if tankers are still unable to load their respective cargoes.
“At some point soon, everyone will also shut in if vessels do not come,” said the source, who wished to remain anonymous.
Shutting down oilfields can lead to operational problems. Technical procedures are necessary before production can resume.
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These procedures may differ depending on the field’s age and structure. Amir Zaman, who heads Rystad Energy’s Americas commercial team, claimed that the procedure may take a long time before production resumes.
“The conflict could be ended, but it could take days or weeks or months, depending on the types of fields, age of the field, the type of shut in that they’ve had to do before you can get production back up to what it once was,”
Aside from that, direct attacks on energy infrastructure are also being felt.
Iranian forces attacked refineries and terminals in the region, forcing them to temporarily cease operations, with some of them needing repairs.
Qatar, one of the biggest exporters of liquefied natural gas in the world, declared force majeure on its gas exports Wednesday after drone attacks, which are suspected to be from Iran, impacted its operations.
It may take at least one month before production resumes at normal levels. Qatar supplies one-fifth of the world’s liquefied natural gas.
Saudi Arabia also experienced disruptions in its energy infrastructure.
Saudi Aramco’s refinery and crude terminal, which are located in Ras Tanura and are considered among the biggest in the world, was forced to cease operations after being attacked during the conflict. No reports are available about the extent of the damage.
The international community may react to the conflict by rebuilding its petroleum reserves, which have fallen in recent years. This may help to support the price of crude oil as the conflict subsides.