Middle East escalation sends shockwaves through global energy markets

• Israel’s strike on Iran has sharply escalated regional tensions, with the conflict quickly spilling over into global energy markets through severe disruption in the Strait of Hormuz.
• Oil and gas prices have surged as shipping paralysis, insurance suspensions, and LNG export disruptions—especially from Qatar—tighten global supply and heighten market volatility.
• A prolonged conflict could deepen fiscal stress across Gulf producers, intensify inflationary pressure worldwide, and complicate the outlook for central bank interest rates.

The key event of this week is undoubtedly Israel’s attack on Iran, carried out in cooperation with the United States, which began on the last Saturday of February. The objective of Operation “Epic Fury” is reportedly to destroy Iran’s nuclear program and dismantle the Islamic Revolutionary Guard Corps, one of the two branches of Iran’s armed forces. Weakening this formation is of particular importance from Israel’s perspective, as a close US ally in the region, because the Corps—consistent with the principles of Iranian foreign policy—supports armed groups and terrorist organizations beyond the country’s borders, including Palestinian Islamic Jihad, Hamas, and Hezbollah. One of their principal goals remains the destruction of the Jewish state and the carrying out of terrorist activities targeting its citizens.

The Strait of Hormuz becomes a critical supply chokepoint

The conflict quickly spilled over into commodity markets. In just one week, Brent crude prices rose by more than 28%, while WTI gained 37%.

Although geopolitical tensions have often supported rallies in the price of “black gold” in the past, the current scale of the move is primarily the result of the actual paralysis of shipping in the Strait of Hormuz, located off Iran’s southern coast. Under normal conditions, this strategic chokepoint handles around 20–25% of global oil trade and nearly 20% of global LNG flows, making it vital to the energy balance of many regions. In recent days, the strait has effectively become a war zone.

Drone attacks and shelling have brought commercial shipping almost to a standstill, even without a formal closure of the route. The situation has been further aggravated by insurers’ decision to suspend coverage for voyages through the Persian Gulf, which in practice has left hundreds of tankers stranded in ports across the UAE, Oman, and Saudi Arabia. Although the US and its allies are attempting to organize escorts and convoys, the risk of a direct strike remains high enough that many shipowners are choosing not to transit the area.

Gulf producers face mounting export and fiscal pressure

At the same time, Gulf states such as Saudi Arabia, Iraq, and Kuwait are facing the problem of physically being able to sell their output. Oil production continues, but export capacity has been sharply curtailed, while insufficient storage space for surpluses of around 20 million barrels per day is increasing pressure to cut production. This is a mechanism that, on the one hand, constrains global supply and supports prices, but on the other hand hits producers’ current budget revenue streams, worsening their short-term fiscal position.

Europe feels the impact of the LNG shock

An equally strong shock has emerged in the gas market, with Qatar at the center of attention, as the Strait of Hormuz is a critical bottleneck for its LNG exports. QatarEnergy declared force majeure and suspended operations at its terminals in Ras Laffan, effectively cutting the country off from part of its export markets. Europe is feeling the consequences particularly strongly. TTF gas futures have surged by around 67% to approximately EUR 53,385/MWh this week alone.

The European market’s sensitivity is even greater because gas inventories after the winter of 2026 are lower, estimated at around 30%, which reduces the safety buffer and increases the risk premium embedded in prices.

Regional security risks extend beyond energy flows

The conflict is also significantly altering the economic sense of security across the region. Saudi Arabia and the UAE do have infrastructure that allows them to partially bypass the strait, including pipelines directing crude to ports on the Red Sea, but their capacity is not sufficient to replace the scale of seaborne transport. Moreover, this infrastructure is becoming a natural target for potential Iranian retaliation, further weakening the viability of any real alternative to Hormuz. Iraq, meanwhile, particularly in the Basra region, has been forced to reduce production in the south of the country for security reasons, directly affecting public finances, as the state budget relies heavily on oil revenues. As a result, the disruption of a single strategic route not only increases oil and gas price volatility, but also raises fiscal and political risk across the region, intensifying global uncertainty and the likelihood of further energy supply disruptions.

A prolonged conflict could reinforce global inflation risks

Naturally, de-escalation of the conflict should bring some stabilization to commodity and energy markets. However, the killing of the Supreme Leader of the Islamic Republic of Iran, Ayatollah Ali Khamenei, may reduce Tehran’s willingness to negotiate and contribute to a prolonged military confrontation. In turn, a longer conflict in the Persian Gulf region could entrench high oil and gas prices, translating into inflationary pressure on a global scale. The effects would be visible not only in energy costs, but also in expectations regarding the path of central bank interest rates worldwide.