EU warns 27 members of prolonged energy shock from Iran war

The European Union’s energy chief told ministers to prepare for a prolonged market disruption as the war in Iran enters a second month, a conflict that has already sent international Brent crude prices soaring more than 55 percent to over $112 a barrel. The warning confirms a grim outlook delivered by top energy executives who believe markets are underpricing the risk of the worst supply shock since the 1973 oil crisis.

“You just can't take 8 to 10 million barrels a day of oil and 20 or so percent of the liquefied natural gas market off the world stage without having some significant repercussions,” ConocoPhillips Chief Executive Ryan Lance said at the CERAWeek energy conference in Houston.

The war, which began after a U.S.-Israeli attack on Iran on February 28, has effectively removed a massive volume of energy from the global market. U.S. crude prices have surged 49 percent to $99.64 per barrel, while prices for jet fuel and diesel have hit $200 and $160 per barrel, respectively, according to commentary from TotalEnergies CEO Patrick Pouyanné.

At stake is the stability of the global economy. Iran’s closure of the Strait of Hormuz, a vital artery for Middle East producers, is “holding the world’s economy hostage,” according to Kuwait Petroleum Corporation CEO Sheikh Nawaf al-Sabah. Analysts warn the conflict could break the economies of Gulf Arab nations and trigger fuel shortages across Asia and Europe as soon as April.

Strait of Hormuz Closure Paralyzes Global Flows

The central cause of the disruption is Iran’s blockade of the Strait of Hormuz, through which a significant portion of the world’s oil and LNG supply flows. The conflict has widened, with Yemen’s Houthi rebels joining by attacking Israel and threatening shipping in the Red Sea, a critical chokepoint for oil supplies. Analysts at Societe Generale now forecast Brent crude to average $125 a barrel in April, with credible moves toward $150 if infrastructure risks grow.

The physical supply of oil is much tighter than futures markets indicate, according to Chevron CEO Mike Wirth, who said the market is reacting based on “scant information” and “perception.” Shell CEO Wael Sawan noted that fuel shortages are already spreading across Asia, with China banning oil product exports and Thailand rationing gasoline.

A "Credibility Hit" for Natural Gas

The war is also delivering a major blow to the global liquefied natural gas market. Drone attacks have forced the closure of the world’s largest LNG hub in Qatar, which supplies about 20 percent of the world’s LNG. This is the second major geopolitical event to cause a spike in gas prices in recent years, following Russia’s invasion of Ukraine in 2022.

“The credibility of LNG and gas imports really has taken a hit,” said Ira Joseph, a senior research associate at Columbia University’s Center on Global Energy Policy. The volatility is forcing major importers to seek alternatives. Japan, Bangladesh, and Thailand have already taken steps to burn more coal. The crisis is creating an opening for other energy sources like renewables and nuclear power as countries scramble to ensure their energy security.

The EU's formal warning solidifies a new “higher-for-longer” reality for global energy prices. The conflict is a stark reminder of the risks of relying on imported fuel and is set to accelerate a security-driven energy transition. However, the immediate economic impact is severe, with an EY report estimating the conflict could shave a full percentage point off India’s GDP growth and add 1.5 points to inflation if it persists.

This article is for informational purposes only and does not constitute investment advice.