Gas and oil prices soar due to the war in the Persian Gulf

BarcelonaThe armed conflict in the Persian Gulf triggered a surge in oil and natural gas prices on Monday, along with a drop in stock markets, due to uncertainty and disruptions to shipping traffic in the region, particularly through the strategic Strait of Hormuz. The price of Brent crude, the European benchmark, rose a notable 7.47% to $78.31 per barrel by 10:00 PM. Similarly, natural gas prices jumped 35.96% on the TTF Dutch benchmark market to €43.45 per megawatt-hour (MWh) due to the suspension of liquefied natural gas exports to Qatar.

The rise in oil prices still places them below the peak recorded in 2022 when the war in Ukraine began, exceeding $113 per barrel, and even further below this century's peak, recorded in June 2008, when it surpassed $132 per barrel. During the Arab Spring uprisings in 2011 and 2012, the price was also much higher, exceeding $120.

Energy and financial markets have therefore reacted as expected to the escalation of hostilities that began on Saturday with the US and Israeli airstrikes in Iran, and to the response from the Tehran regime. Iran has also launched airstrikes against Israel and most of the Persian Gulf countries and parts of the Middle East with ties to the US, such as the United Arab Emirates, Saudi Arabia, Oman, Bahrain, Qatar, Iraq, Kuwait, and even British military bases. Israel has also bombed Hezbollah positions—the Shiite militias allied with Iran—in Lebanon.

The conflict has forced the closure of airspace in the region and casts doubt on the continued flow of oil tankers through the Strait of Hormuz, the gateway between the Persian Gulf and the Indian Ocean, through which between 20% and 30% of the world's oil and 20% of its liquefied natural gas pass. "It's a very strategic point and a textbook bottleneck," says Oriol Montanyà, professor of economics at UPF-BSM. One of the most significant problems is that, with the outbreak of war in the area, most insurance companies for ships transiting the strait have begun withdrawing their coverage, preventing the continued transport of oil and refined products. In fact, the Iranian government has announced military action against vessels crossing the strait. Both Iran and many of the countries involved in the conflict are among the world's leading crude oil producers. Two of the other major producers are Russia, where oil has been internationally sanctioned since President Vladimir Putin ordered the invasion of Ukraine, and Venezuela, where a US military intervention last January resulted in the arrest and extradition of President Nicolás Maduro to the United States.

Stock Market Falls

As for the stock markets, most European exchanges closed in the red on Monday, although the declines were moderate. The Ibex 35, the main index of the Spanish stock market, fell 2.62%. Frankfurt's Dax dropped 2.56%, and in London, the FTSE-100 lost 1.2%. In Paris, the CAC-40 declined 2.17%, and in Milan, the FTSE MIB fell 1.97%. In Spain, the companies most affected were IAG, parent company of airlines such as Iberia, Vueling, Level, and British Airways, and the technology firm Amadeus, which has a significant portion of its business dedicated to flight reservation software. IAG closed the day down 4.95%, and Amadeus fell 2.58%. Conversely, the oil company Repsol and the gas company Naturgy led the gains, with a notable 5.39% increase in the former and a more modest 1.59% in the latter.

As for the US, stock markets closed the day almost flat: the S&P 500 registered an increase of 0.01%, the Dow Jones decreased by 0.18%, and the Nasdaq, which groups the large US technology companies, grew by 0.3%.

Danger of inflation

The Spanish Minister for Ecological Transition, Sara Aagesen, has stated that Spain receives only 5 percent of its oil and 2 percent of its liquefied natural gas from the Persian Gulf countries. "This demonstrates the vulnerability that external energy dependence represents for our economy and that the Spanish and European approach is the most appropriate," Aagesen told the media, where she also called for maintaining the reduction in dependence on fossil fuels and increasing the share of renewable energy. However, the war in the Middle East and its impact on oil prices could affect the prices of consumer goods, as already happened in Europe in 2022, as a result of the energy crisis stemming from the Russian invasion of Ukraine. "Oil is a very cross-cutting energy source; an increase in price means an increase in costs in distribution chains," Montanyà points out, adding that "an inflationary scenario" is possible.

This potential inflation will depend on how long the conflict lasts and how energy prices, especially crude oil, evolve. Although Europe primarily consumes Brent crude (extracted from the North Sea), the rising price of Persian Gulf oil will drive up prices globally. Furthermore, China is the main customer of Middle Eastern oil-producing countries, so a rise in the cost of this oil and greater scarcity could increase the price of products manufactured in the Asian giant, which are then exported worldwide, explains Montanyà.