Natural gas prices in European and British markets saw a significant rise on Thursday morning due to renewed airstrikes in the US-Iran conflict. President Donald Trump denied reports indicating a nearing agreement to reopen the Strait of Hormuz, dispelling hopes for de-escalation and causing energy markets to rebound after a temporary decline observed on Wednesday.
The Dutch TTF standard gas contract for the nearest expiry increased by €1.29, reaching €47.70 per megawatt hour. Similarly, the corresponding British contract for the nearest expiry rose by 3.09 pence, reaching 116.13 pence per British thermal unit (therm).
Details of the Event
Dmitry Duhalievich, an energy market analyst at LSEG, attributed this rise to the positive price reaction to Iranian strikes targeting a US military base, indicating a new escalation that threatens the complete collapse of ceasefire efforts between the two sides. This exchange of missile strikes occurred just hours after Trump denied a report suggesting he was close to a settlement that would ensure the resumption of commercial shipping through the Strait of Hormuz.
The near-total closure of the Strait of Hormuz has continued since military operations erupted at the end of February, causing a disruption of about 20% of global liquefied natural gas supplies and trapping significant shipments within the Gulf region. Fatih Birol, the Executive Director of the International Energy Agency, explained that this ongoing disruption has prompted both producers and consumers to seek diversification of trade routes and alternative energy sources to adapt to the current geopolitical crisis.
Background & Context
Concerns are escalating regarding rising tensions in the Middle East, which directly impacts global energy markets. Daniel Hynes, Senior Commodity Strategist at ANZ Bank, confirmed that prices are receiving strong support from fears of intensified competition between Europe and Asia for available shipments, as Europe seeks to replenish its depleted strategic reserves ahead of the upcoming winter.
Arne Lohmann Rasmussen, Head of Analysts at Global Risk Management, also noted that the focus is currently on the potential emergence of a strong El Niño climate phenomenon this year, which could raise temperatures in Asia and increase demand for air conditioning, thereby pulling more LNG shipments eastward.
Impact & Consequences
Official figures released by the European Gas Infrastructure Association reflect the depth of the crisis; gas storage levels in the European Union recently reached only 38.8% of their capacity, compared to about 46.6% at the same time last year, highlighting a sharp decline that imposes ongoing price pressures. In European carbon markets, the benchmark contract rose by €0.05, reaching €78.77 per metric ton.
Financial markets are generally affected by rising tensions, as Japanese stocks fell on Thursday, influenced by concerns over the Middle East crisis and evaluations in the technology sector. The Nikkei index declined by 0.47%, closing at 64,693.12 points.
Regional Significance
These developments directly impact the Arab region, where Gulf countries are among the largest producers of gas and oil globally. Any escalation in the US-Iran conflict could negatively affect energy supplies, reflecting on global energy prices. Additionally, increasing tensions may lead to heightened investments in alternative energy sources, indicating a shift in energy strategies within the region.
In conclusion, energy markets remain under continuous pressure due to geopolitical tensions, necessitating proactive measures from the involved countries to ensure stability in energy supplies and prices.