European natural gas prices soared by as much as 49% and oil prices jumped 8% following military escalations involving Iran, disrupting critical energy supply routes through the Strait of Hormuz. The conflict, which included U.S. and Israeli strikes resulting in the death of Iran's Supreme Leader Ayatollah Ali Khamenei, has intensified security concerns and slowed tanker traffic in the vital waterway.
The immediate catalyst was QatarEnergy halting its liquefied natural gas (LNG) production after drone attacks targeted its facilities. As a producer accounting for nearly one-fifth of global LNG exports, this halt tightened global supply. Dutch TTF gas futures, a European benchmark, surged dramatically in response. Analysts from Goldman Sachs warned that a one-month halt in LNG shipments through the Strait could more than double European gas prices, potentially pushing them toward €74 per megawatt-hour, with longer disruptions risking prices above €100.
Europe is particularly vulnerable due to its heavy reliance on LNG imports, especially from Qatar, after pivoting away from Russian pipeline gas post-2022. ING economist Carsten Brzeski labeled the eurozone the "most exposed major economy" to spillovers from the conflict. The region's need to rebuild gas inventories after winter further compounds the supply risk.
Oil markets were also roiled, with crude breaking through $80 a barrel. The Strait of Hormuz handles approximately 20% of global seaborne oil and 19% of global LNG supply. Energy consultancy Wood Mackenzie suggested that if the strait were to close, oil could settle above $100 a barrel, which would push U.S. gasoline prices from around $3 to approximately $4.50 per gallon. ING estimates such an increase could add 1.5 percentage points to U.S. headline inflation.
The Federal Reserve's monetary policy is now under increased scrutiny. Former Treasury Secretary Janet Yellen stated the conflict "puts the Fed even more on hold," suggesting a higher likelihood of maintained interest rates due to rising inflation risks. Economists are modeling scenarios ranging from slowed U.S. growth to a potential recession if the conflict widens and severely impacts global shipping.
While the U.S. benefits from being a net energy exporter, Europe faces a more direct economic threat. A prolonged conflict keeping energy prices elevated could force European governments to increase spending to shield consumers, adding uncertainty to the region's fragile economic recovery.
