Energy prices surge as tanker disruptions and facility shutdowns rattle global supply

Oil prices surged sharply Monday as heightened tensions in the Middle East disrupted critical shipping routes, raising concerns about global energy supplies amid U.S. and Israeli strikes on Iran.

Benchmark U.S. crude jumped 7.6% to $72.12 per barrel, while Brent crude, the international standard, climbed 8.6% to $79.11 per barrel. European natural gas futures experienced an even more dramatic spike, soaring more than 40% after Qatar, a major supplier, halted its liquefied natural gas production due to the escalating conflict.

The price volatility centers on the Strait of Hormuz, a narrow waterway between Iran and Oman through which approximately 20% of the world’s oil supply passes daily. Tanker traffic through this critical chokepoint dropped dramatically as satellite navigation systems experienced disruption, according to data analytics firm Kpler.

Several vessels reported attacks in waters surrounding the strait. In one incident, a drone boat struck a Marshall Islands-flagged oil tanker in the Gulf of Oman, killing one crew member, according to Omani officials. The UK Maritime Trade Operations Center warned of heightened electronic interference affecting ship tracking systems in the region.

In a significant escalation, Saudi Arabia intercepted Iranian drones targeting the Ras Tanura oil refinery near Dammam, one of the kingdom’s largest facilities. Saudi state television reported the refinery was shut down as a precautionary measure. Market analysts are now closely monitoring whether the conflict will spread to other oil-producing nations in the region.

The timing of this oil price shock is particularly concerning for American consumers, as U.S. gasoline prices were already trending upward ahead of the summer driving season. The national average for regular gasoline rose more than 5 cents last week to $2.98 per gallon, according to AAA. Research from the Federal Reserve Bank of Dallas indicates that crude price increases typically flow through to pump prices within 20 days, with a $10 per barrel rise generally translating to a 25-cent increase per gallon.

For European consumers, while taxes buffer some of the immediate impact on fuel prices, sustained higher energy costs would still affect the broader economy. Holger Schmieding, chief economist at Berenberg bank, estimates that a sustained $15 per barrel increase could add 0.5 percentage points to European consumer prices.

The geography of the Persian Gulf presents significant challenges for alternative oil transport routes. While some pipelines bypass the Strait of Hormuz, they lack sufficient capacity to accommodate all the oil that normally transits the waterway. Saudi Arabia, Iraq, and the United Arab Emirates heavily depend on tankers to deliver their oil to global markets.

Interestingly, a complete blockade of the strait would harm Iran’s own interests, as all of its 1.6 million barrels per day of exports pass through the same channel. Most Iranian oil goes to China, where refineries are less constrained by U.S. sanctions that limit Iran’s access to other markets.

Qatar’s decision to suspend liquefied natural gas production is particularly significant for Europe, which has become increasingly dependent on LNG shipments since reducing its reliance on Russian pipeline gas following the Ukraine invasion. European gas futures for April delivery jumped to 45.46 euros ($53.26) on the news.

Monday’s price increases were within the $5-$10 per barrel range that analysts had anticipated based on initial conflict fears. However, prolonged disruption to shipping in the Strait of Hormuz or damage to oil infrastructure in Gulf countries could push prices considerably higher.

“The key question for the global economy is obvious: Will the Strait of Hormuz be effectively closed for oil and gas exports for more than a few weeks?” noted Schmieding. “If so, it would hurt global growth and raise global inflation noticeably.”

Torbjorn Soltvedt, principal Middle East analyst at risk intelligence company Verisk Maplecroft, views Iran’s attack on the Ras Tanura refinery as a major escalation, demonstrating that key Gulf energy infrastructure remains within Iran’s reach. He suggests Iran’s strategy aims to increase economic pressure on Gulf states like Saudi Arabia and the UAE, hoping these countries will urge the U.S. and Israel toward de-escalation.

“If we start to see additional direct attacks against energy infrastructure, not just in Saudi Arabia and Kuwait, but in other countries in the region, then oil prices could push toward $90 and perhaps even beyond,” Soltvedt warned.

As the situation develops, market analysts expect continued uncertainty and volatility in global energy markets in the coming weeks.