Iran War Puts Global Energy Markets on the Brink of a Worst-Case Scenario
The war in Iran reached a new extreme this week, as Israel and Iran launched strikes against oil and gas production and export facilities. These attacks raise the stakes in a war that is already stifling energy and commodity markets and will threaten the long-term health of the global economy. The International Energy Agency on Friday recommended people work from home, drive slowly and use gas stoves sparingly to soften price shocks caused by the crisis.
The situation in the Gulf is so extreme, analysts told WIRED, that it is almost unbelievable.
“This scenario is something you give to first-year oil analysts to say, ‘Okay, if “It’s a very interesting, illustrative educational thought experiment,” says Rory Johnston, a Canadian oil market researcher. “It’s kind of like, what would happen if gravity suddenly stopped working for 10 minutes? The things that you just give to students to say, ‘Let’s run a thought experiment on something extreme and see how the system would respond’? I never thought we would actually see this.
Ellen Wald, energy and geopolitics consultant, agrees. “It looks like a war game simulation of energy markets,” she says.
The first attacks on Iran earlier this month effectively closed the Strait of Hormuz, one of the world’s most important shipping routes. The strait is the main lifeline for oil and gas exports not only from Iran, but also from other Middle Eastern countries. Most members of the Organization of the Petroleum Exporting Countries (OPEC), the world’s largest oil and gas cartel, use the strait to ship the region’s oil and gas to its customers. The strait is also a key hub for oil and gas byproducts such as industrial chemicals and fertilizers. The closure of the strait shook the global economy: after the initial attacks, oil prices soared above $100 a barrel for the first time since Russia’s invasion of Ukraine in 2022.
“Whenever there is military activity in the Persian Gulf or even the Middle East, the oil markets tend to get very nervous,” says Wald; the closure of the strait was a sign that this war could have far more extreme consequences than other conflicts. But for the first few weeks, the oil production facilities themselves remained largely intact. “No oil or product was coming out, and some countries didn’t have enough storage and so they stopped production simply because they couldn’t store the oil,” Wald says. “But it’s the kind of thing that can be fairly quickly reversed.”
However, in recent days, missile strikes have begun to massively target oil and gas infrastructure. On Thursday, Israel launched a series of strikes against various oil and gas facilities in the region, including the South Pars gas field, the world’s largest natural gas field, jointly controlled by Iran and Qatar. Iran responded with counterattacks, including against the world’s largest oil export facility in Qatar. Oil prices temporarily rose to nearly $120 per barrel.
These strikes appear to have damaged infrastructure critical to the world’s fossil fuel supply. Qatar produces around 20% of the world’s supply of liquefied natural gas (LNG). The CEO of QatarEnergy, the state-owned oil and gas company, told Reuters the strikes had knocked out 17 percent of its capacity for the next five years and the company will have to declare force majeure on contracts with countries in Europe and Asia because of the damage.
“Once you get to the point where real long-term damage occurs, it won’t be as easily reversible,” Wald says. “Once the conflict ends, we could still see a period of sustained increases in oil prices, simply due to the loss of production. »
