Energy prices surged after Iran struck the world’s largest LNG complex, causing damage that Qatar said could take five years to repair, as the energy sector's worst fears about the war launched by the U.S. and Israel on Iran came true.
Here are three key takeaways on the current Iran conflict:
- Significant Infrastructure Damage and Supply Loss: An Iranian retaliatory strike on Qatar’s Ras Laffan plant—the world’s largest LNG complex—has damaged facilities so severely that repairs could take up to five years, resulting in a 17% loss of Qatar’s LNG exports.
- Global Market Surge and Inflation Risk: Energy prices spiked following the attack, with European gas prices jumping as much as 35% and oil rising 10%; consequently, the European Central Bank warns of a material impact on inflation and a growing risk of "stagflation."
- Regional Escalation and Multi-Country Disruption: The conflict has expanded to hit the "plumbing" of the global energy system, with additional attacks or disruptions reported at refineries and gas facilities in Saudi Arabia, the UAE, and Kuwait.
QatarEnergy CEO Saad al-Kaabi told Reuters the state-owned gas company may have to declare force majeure on long-term contracts to Italy, Belgium, South Korea and China after the attack meant a loss of around 17% of Qatar's liquefied natural gas exports for between three and five years.
Gas prices in Europe soared as much as 35% on, and oil jumped as much as 10%, before paring gains by mid-afternoon.
"I never in my wildest dreams would have thought that Qatar would be - Qatar and the region - in such an attack, especially from a brotherly Muslim country in the month of Ramadan, attacking us in this way," al-Kaabi said.
The energy industry has for years feared a conflict in the region would cause long-term damage to oil and gas facilities and trigger shortages in global energy supplies.
Analysts say Israel's attack on Iran's South Pars gas facilities on Wednesday and the retaliatory strike on Qatar's Ras Laffan plant represent a sharp escalation in the conflict and one that many had been dreading.
"We are now well on the road to the doomsday gas-crisis scenario," said Saul Kavonic, an energy analyst at MST Financial. "Even once the war ends, the disruption to LNG supply could last for months or even years."
Iran struck energy infrastructure across the Middle East in retaliation against Israeli attacks on its gas facilities.
The aerial attacks targeted a refinery in Saudi Arabia, forced the United Arab Emirates to shut gas facilities and started fires at two Kuwaiti refineries as Donald Trump threatened retaliation if they persisted.
"This latest escalation feels like a turning point for markets because the conflict is no longer just about military headlines or Strait of Hormuz closure," said Charu Chanana, chief investment strategist at Saxo in Singapore.
"It is now hitting the plumbing of the global energy system. What is unsettling markets now is the growing stagflation risk," she added.
The European Central Bank said on Thursday the war in Iran would have a "material impact" on near-term inflation, depending on its intensity and duration.
Financial markets now expect euro zone inflation to climb close to 4% over the next year, then take years to return to the ECB's 2% target.
Traders are pricing in two or three rate hikes by December, betting that the ECB would not tolerate another war-fuelled spike in inflation after being stung by Russia's invasion of Ukraine four years ago.
The UK, France, Germany, Italy, the Netherlands and Japan called for an immediate moratorium on attacks on oil and gas facilities and said they are working with energy-producing nations to stabilise markets, according to a joint statement.
Trump earlier warned Iran in a statement on social media not to retaliate by attacking Qatari LNG facilities again and threatened to "massively blow up the entirety of the South Pars Gas Field" if it did so. Qatar shares the South Pars gas field, the world’s largest, with Iran.
Gas prices in Europe have doubled since late February before the U.S. and Israel launched attacks on Iran.
Oil loadings by Saudi Arabia at the Red Sea port of Yanbu were disrupted briefly on Thursday, two sources told Reuters, after a drone fell on the nearby Aramco-Exxon refinery, SAMREF.
The port is the only export outlet for the world's largest oil exporter after Iran effectively blocked tanker traffic leaving the Gulf via the Strait of Hormuz.
Kuwait Petroleum Corporation's Mina al-Ahmadi and Mina Abdullah refineries were also targeted by drones on Thursday, resulting in fires at both sites, the state news agency said.
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The UAE shut its Habshan gas facilities after intercepting missiles early in the day. No injuries were reported, the Abu Dhabi Media Office said.
UAE authorities said they were responding to an incident at the Bab oilfield caused by falling debris from intercepted missiles.
