Illustration; Source: International Energy Agency (IEA)

Middle East’s brewing cauldron of geopolitical tensions: Are oil & gas and LNG prices at risk of spiking to 2022 levels?

With the Middle East in the throes of high tension levels, which are eroding the security in the region, coupled with the ongoing Israel-Gaza crisis, the world, together with oil and gas markets, is on tenterhooks as the situation unfolds. The Iran-Israel complication puts the Middle East on the verge of a wider war with the potential to open the floodgates of even more hostilities, wreaking havoc on global trade flows, oil, gas, and LNG exports, elevating energy prices in the process.

Illustration; Source: International Energy Agency (IEA)

The tensions in the Middle East have escalated over the past few weeks, reaching a tipping point with Iran’s missile strike against Israel, which came as a response to an attack on its embassy in Damascus, Syria. After Israel’s far-right politicians vowed retaliation, things threatened to spiral out of control, especially as reports of an Israeli attack on Iranian soil emerged. This puts the ball in Tehran’s court while the world awaits with bated breath to see how things will play out.

Many scenarios are running on a loop, however, Iran has so far made light of the drone attack on its city of Isfahan, giving little weight to the incident with no casualties or damage being talked about. This has prompted many analysts to conclude that Tehran has no intention of retaliating in kind. Whether this will be the case or not remains to be seen but such a scenario would help put the breaks on a further direct escalation between Israel and Iran and prevent a wider conflict in the Middle East.

The region is already witnessing horrific scenes of bloodshed and despair, as the Palestinian death toll from the Israel-Gaza war surpasses 34,000. This, coupled with the Ukraine crisis, continues to hit the global markets, especially oil and gas ones, bringing more volatility to energy prices. These grim circumstances, alongside geopolitical and other aspects, pushed oil prices up over these past few months, closing in on the $90 per barrel mark, thanks to supply concerns. In line with this, following a surge of over $3 per barrel, Brent futures settled at $87.29 a barrel on April 19. The situation changed on April 22, with the price going further down but still staying above $86 a barrel.

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Fears remain and run deep that a further escalation in the Middle East will lead to a tighter energy supply and a potential Hormuz blockage, which could impede a fifth of the world’s LNG and oil exports. Iran has previously hinted at the possibility of closing the Strait of Hormuz, a narrow waterway that connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. If Tehran gets pulled into the war between Israel and Gaza, experts warn that closing the Strait of Hormuz may be one of the moves the country will make.

Last May, the United States (U.S.) already set the wheels into motion to bolster naval patrols in and around the Strait of Hormuz on a mission to address the growing threat to commercial shipping in the Middle East and put a stop to vessel seizures, after Iran reportedly confiscating a third oil tanker in the Persian Gulf in a matter of weeks.

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Some analysts have warned that a region-wide war would push oil, gas, and LNG prices to 2022 sky-high levels. Even though such a high price scenario may be a silver lining for the market, bringing profit bonanza back on the table primarily for fossil fuel players, it can spell disaster for consumers. Most importantly, a wider war in the Middle East would leave people ensnared in the deadly jaws of yet another tragic conflict in the lands around the southern and eastern shores of the Mediterranean Sea.

The International Energy Agency (IEA) also believes that growing tensions in the Middle East heighten global oil security risks, putting increased volatility in oil markets under the spotlight and providing a fresh reminder of the importance of oil security. The latest edition of the IEA’s monthly ‘Oil Market Report’ points out that global oil markets were already tight before Iran decided to retaliate against Israel’s attack, as the Brent international oil price benchmark breached the threshold of $90 a barrel earlier this month, reaching its highest level since October 2023 amid the heightened tensions between the two countries.

Moreover, the International Energy Agency outlines that the sustained output curbs by OPEC+ mean that non-OPEC+ producers, led by the Americas, are expected to continue driving world oil supply growth through 2025. While additional volumes from the United States, Brazil, Guyana, and Canada alone could come close to meeting world oil demand growth for this year and the next one, global oil demand growth is in the midst of a slowdown.

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Based on the IEA’s latest forecasts, global oil demand is expected to ease to 1.2 million barrels a day this year and 1.1 million barrels per day in 2025, bringing a peak in consumption by the end of this decade into view. With the strong recovery in demand following the disruptions of the Covid-19 pandemic having largely run its course, structural factors are set to lead to a gradual easing of oil demand growth over the rest of this decade.

In light of this, robust production from non-OPEC+ coupled with a projected slowdown in demand growth is set to lower the call on OPEC+ crude by roughly 300 kb/d in 2025, to an average of 41.5 mb/d. If the bloc were to produce in line with that call, effective spare capacity could top 6 mb/d – excluding the Covid-19 period – its largest ever supply buffer.

While assessing the impact of Iran’s missile strike on oil markets, geopolitics, macroeconomy, and U.S. elections, Rystad Energy emphasized: “The unprecedented attack originating from Iranian territory on Israeli soil could threaten oil supplies from Iran if Prime Minister Benjamin Netanyahu approves a counteroffensive, and, in the worst case scenario, could disrupt tradeflows along the immensely vital Strait of Hormuz.

“Elevated energy prices for a sustained period may end up derailing the efforts made by the Federal Reserve and central banks around the world in trying to tame inflation, with higher readings creating headwinds in an election year for President Joe Biden as he campaigns for a second term in office.”

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A two-state solution for the Israel-Gaza crisis still appears as a beacon of light in the seemingly endless tunnel of despair and human suffering, which we are all watching in the Middle East. This move will most certainly craft a nurturing peace in the region, if the world has the courage to pursue and implement it, creating a safe place for people on both sides of the conflict, which has been running in the background and flaring up for decades.  

There is no denying the need for swift action to finally put an end to the bloodshed but trying to come up with ways to make this happen and turn dreams of peace into a reality for all the people living in the Middle East, certainly provides food for thought given the current positions on the geopolitical chessboard.

One thing is certain – the world needs responsible leaders and not warmongering, political discrimination, and self-serving politicians, who have no integrity or desire to do the right thing, and instead only want to chase profit and ensure personal gain on the back of other people’s suffering.

Disclaimer: The author’s views expressed in this article do not necessarily reflect Offshore Energy’s editorial stance.


𝐃𝐨 𝐲𝐨𝐮 𝐰𝐚𝐧𝐭 𝐭𝐨 𝐠𝐫𝐚𝐛 𝐭𝐡𝐞 𝐚𝐭𝐭𝐞𝐧𝐭𝐢𝐨𝐧 𝐨𝐟 𝐲𝐨𝐮𝐫 𝐭𝐚𝐫𝐠𝐞𝐭 𝐚𝐮𝐝𝐢𝐞𝐧𝐜𝐞 𝐢𝐧 𝐨𝐧𝐞 𝐦𝐨𝐯𝐞? 𝐋𝐨𝐨𝐤 𝐧𝐨 𝐟𝐮𝐫𝐭𝐡𝐞𝐫 𝐭𝐡𝐚𝐧 𝐎𝐟𝐟𝐬𝐡𝐨𝐫𝐞 𝐄𝐧𝐞𝐫𝐠𝐲! 𝐎𝐮𝐫 𝐜𝐨𝐧𝐭𝐞𝐧𝐭 𝐢𝐬 𝐫𝐞𝐚𝐝 𝐛𝐲 𝐭𝐡𝐨𝐮𝐬𝐚𝐧𝐝𝐬 𝐨𝐟 𝐩𝐫𝐨𝐟𝐞𝐬𝐬𝐢𝐨𝐧𝐚𝐥𝐬 𝐞𝐧𝐠𝐚𝐠𝐞𝐝 𝐢𝐧 𝐨𝐢𝐥 & 𝐠𝐚𝐬, 𝐦𝐚𝐫𝐢𝐭𝐢𝐦𝐞, 𝐨𝐟𝐟𝐬𝐡𝐨𝐫𝐞 𝐰𝐢𝐧𝐝, 𝐠𝐫𝐞𝐞𝐧 𝐦𝐚𝐫𝐢𝐧𝐞, 𝐡𝐲𝐝𝐫𝐨𝐠𝐞𝐧, 𝐬𝐮𝐛𝐬𝐞𝐚, 𝐦𝐚𝐫𝐢𝐧𝐞 𝐞𝐧𝐞𝐫𝐠𝐲, 𝐚𝐥𝐭𝐞𝐫𝐧𝐚𝐭𝐢𝐯𝐞 𝐟𝐮𝐞𝐥𝐬, 𝐬𝐡𝐢𝐩𝐩𝐢𝐧𝐠, 𝐚𝐧𝐝 𝐨𝐭𝐡𝐞𝐫 𝐢𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐞𝐬 𝐨𝐧 𝐚 𝐝𝐚𝐢𝐥𝐲 𝐛𝐚𝐬𝐢𝐬.

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