Warnings from Qatar’s energy minister, Saad al-Kaabi, that all oil and gas production within the Persian Gulf could cease within days have spurred energy markets to begin pricing in the full implications of the ongoing conflict, according to MST Marquee energy analyst Saul Kavonic. Al-Kaabi told the Financial Times that the resulting surge in oil prices could significantly damage global economies. Brent oil prices briefly surpassed $US111 a barrel in early trading on Monday. Kavonic noted that the market had been complacent about the scope and potential duration of the war and associated supply disruptions until last Friday’s statements.
Kavonic explained that after three years of geopolitical risk premiums failing to materialise into actual supply disruptions, the market had grown complacent regarding current events. However, the potential for a wider conflict involving Iran represents an energy crisis scenario that has long been anticipated. The analyst suggests that the market is only now beginning to appreciate the severity of the situation.
Kavonic predicts that liquefied natural gas (LNG) would be impacted far more than oil due to limited LNG storage capacity, low gas stockpiles in Europe, and the lack of alternative export routes for Qatari LNG that bypass the Strait of Hormuz. Qatar is a major producer of LNG, which is natural gas that has been converted to liquid form for ease of storage or transport, and oil and gas.
Last week, LNG prices for immediate delivery surged to approximately $US25 per million British thermal units, a significant increase from less than $US10 the previous week, following Qatar’s temporary suspension of LNG production. This price surge reflects growing concerns about potential disruptions to energy supplies from the region.
