A gas shock, not an oil shock, from the Iran war looks more threatening | Nils Pratley

A gas shock – not an oil shock – from the Iran war looks more threatening Nils Pratley Europe and Asia will take an economic hit if the supply of Qatari LNG is halted by the closure of the strait of Hormuz Gas prices soar and oil jumps as Iran war pushes down global stock markets T he price of oil grabs most of the energy-related attention during conflicts in the Middle East for understandable reasons: oil is the commodity on which the world runs and analysts have roughly reliable models for what every $10 per barrel increase in cost does to global growth and inflation. So, on that front, one can say we’re still a long way from “oil shock” territory. Monday’s rise to $79 a barrel, up 9% since the end of last week, is sizeable, especially as the price was $62 at the start of this year, but remember that $125 was seen shortly after Russia’s invasion of Ukraine in 2022 and $100-plus was then sustained for three months. A gas shock, however, looks a real and present threat. European wholesale gas prices rose 50% as QatarEnergy, the world’s largest producer of liquefied natural gas halted production after being targeted by Iranian drone strikes. That is 20% of the world’s LNG going offline at a stroke, which would be a fundamental change in the market if sustained for a long period. And the key point is that Qatari LNG cannot be diverted via pipeline, as Saudi oil can be to a degree; it has to go through the pinchpoint of the strait of Hormuz, where shipping has more or less stopped. A Goldmans Sachs analyst said the price rise for gas in Europe could hit 130% if flows through Hormuz were disrupted for a whole month – “a threshold that triggered large natural gas demand responses during the 2022 European energy crisis”. Stifel’s analyst put it more bluntly: “Attempting regime change in Iran risks a repeat of Europe’s 2022 energy crisis, just worse the second time around.” Europe – and Asia – are indeed in the eye of the LNG storm because they are the big buyers of the fr...