Iran War threatens to hit global energy markets for a long time

Even if the U.S. and Israel's war against Iran ends soon, consumers and businesses around the world could face weeks or even months of higher fuel costs as suppliers deal with damaged facilities and logistics and increased shipping risks. This outlook is a threat to the global economy and to President Donald Trump's political position as he heads into midterm elections. Voters are concerned about energy costs and do not like foreign involvement.

JP Morgan analysts stated in a research note published on Friday that the market has shifted from pricing geopolitical risks to dealing with operational disruptions, as refinery shutdowns and restrictions on exports begin to affect crude processing and regional supplies. Tehran has been attacking energy infrastructure in the region and targeting ships in the Strait of Hormuz, which is a vital waterway between Iran and Oman. This conflict has already caused a suspension of 5% of global oil and gas supplies. The global oil price has risen by more than 25% since war began, pushing up fuel prices worldwide. The Strait is almost completely closed, forcing the world's largest oil producers, Saudi Arabia, United Arab Emirates (UAE), Iraq, and Kuwait, to stop shipping 140 million barrels of crude oil to refiners around the globe. This amount of oil would be enough to meet 1.4 days worth of global demand. Analysts, traders, and sources say that as a result of the Middle East Gulf oil and gas storage facilities rapidly filling up, the oil fields in Iraq, Kuwait, and the United Arab Emirates are forced to reduce oil production.

A source from a state-owned oil company in the area, who declined to be identified, said that "everyone" will shut down if vessels don't arrive soon.

Amir Zaman, Rystad's head of Americas commercial, says it could be a long time before oilfields in the Middle East are back to normal.

He said that the conflict could end, but that it might take days, weeks, or even months to get back to the level of production they were used to. This depends on the age and type of field, as well as the kind of shutdowns the farmers have had to perform.

Iranian forces are also targeting energy infrastructure in the region, including refineries, terminals and power plants, forcing them to close. Some of these operations have been badly damaged and need repairs. Qatar declared force majeure Wednesday on its massive volumes of gas exported after Iranian drone attacks. It may take a minimum of a month for production to return to normal levels, according to sources. Qatar supplies 20% of the world's LNG. Saudi Aramco has closed its massive Ras Tanura crude export terminal and refinery due to the attacks. However, there are no details about damage. The White House justified the attack by claiming that Iran posed a threat to the United States, but it did not provide details. Trump also expressed concern about Iran's attempts to acquire a nuclear weapon.

DANGER IN STRAIT

Markets would be soothed by a quick end to war. It could take several weeks or even months to return to the pre-war level of supply and prices, depending on how badly the infrastructure and shipping have been damaged.

Joel Hancock is an energy analyst at Natixis CIB. He said: "We haven't seen any structural damage yet, but the risk continues as long as war continues."

How and when will the Strait of Hormuz be safe again for shipping? This is the biggest question in terms of energy supply. Trump has promised insurance coverage for vessels in the area and offered to escort oil tankers. Intelligence and military sources say that safety on the waterway is unlikely, because Iran can sustain drone attacks for months.

By exposing the dangers associated with low inventories, the conflict could encourage countries to replenish their strategic oil reserves in the months and weeks following the end of the conflict. This would boost demand for oil and help to support the price.

GLOBAL ECONOMIC AND POLITICAL RISK

The disruption of energy shipments has reverberated through Asia's supply chains and economy, which is heavily dependent on imports. 60% of the crude oil it uses comes from the Middle East.

Sources said that Mangalore Refinery & Petrochemicals in India declared force majeure for gasoline export cargoes this week. The refinery joins a growing list of refineries across the region who are unable to meet sales contracts because of a lack of supply.

At least two refineries have stopped running. China, which is a major supplier in the region, asked refineries to stop fuel exports. Thailand has also stopped fuel exports while Vietnam has stopped crude shipments. The disruption has given Russia an advantage. The U.S. gave Indian refiners 30 days to buy Russian crude in order to replace lost Middle East supplies. Washington had threatened India with tariffs if it didn't cut its Russian oil imports.

Japan is the world's No. In anticipation of rising fuel prices, the baseload power contracts for Tokyo's fiscal year beginning in April for the No. In Seoul, drivers queued at petrol stations to prepare for higher prices.

The crisis in gas supply and the rising prices for European consumers are two blows to the consumer. Gas?supplies were disrupted in the region due to the sanctions imposed on Russian energy imports following the Russian invasion of Ukraine in 2022.

Europe imported LNG to replace Russian pipeline gas. Europe needs to purchase 180 more LNG cargoes this year than last to reach the gas storage levels required before winter.

As the United States has become the largest oil and natural gas producer in the world, the supply risks are reduced. U.S. fuel and crude oil prices are rising in tandem with the international crude market, so even if domestic supply is abundant, pump prices will be affected.

AAA reports that the average price of gasoline in the U.S. was $3.32 per gallon on Friday. This is a 34-cent increase over last week. Diesel prices rose to $4.33 per gallon from $3.76 last week.

As they prepare for the midterm elections, Trump and his Republican colleagues face a serious risk as higher prices at gas stations.

Mark Malek is chief investment officer of Siebert Financial. He said that gasoline prices have a psychological impact. They are the inflation numbers that consumers see each and every day." (Reporting by Valerie Volcovici, Timothy Gardner, Stephanie Kelly, Nina Chestney, Nora Buli, Susanna Twidale, Helen Clark, Nidhi Verma, Timour Azhari, Yousef Saba, Maha El Dahan, Marwa Rashad, AhmadGhaddar, Shariq Khan, Daewoung Kim, Yunji Ha, Heejung Jung; editing by Richard Valdmanis, Simon Webb, Anna Driver, Rod Nickel)

(source: Reuters)