Qatar Energy's operating facilities in Mesaieed Industrial City, south of Doha, Qatar. The producer announced a complete shutdown of LNG production this week, following Iranian attacks on energy installations.Getty Images/Getty Images
Oil prices shot to within sight of US$100 a barrel and stock markets sank on Friday after Qatar’s Energy Minister warned Persian Gulf exporters will shut down energy production “within days” as tankers are unable to pass through the Strait of Hormuz.
The bombardment of Iran by the United States and Israel, and Iran’s retaliatory strikes, are sparking increasing predictions of oil and gas supply disruptions causing economic crises globally, and Qatar’s Saad al-Kaabi’s comments on Friday were the starkest yet.
Mr. al-Kaabi said in an interview with the Financial Times that Gulf energy producers, unable to export crude and liquefied natural gas through the key waterway over fears of attacks, will in the next few days have to declare force majeure, releasing them from obligations to deliver supplies to customers. He said that could drive crude prices to US$150 a barrel.
International benchmark Brent oil jumped above US$94 a barrel after the interview was published. Brent later pared gains to US$92.69, an increase of about 8.5 per cent. West Texas Intermediate spiked more than 12 per cent to US$90.90.
How the closing of the Strait of Hormuz is affecting global oil markets
The minister said gross domestic product growth will be stunted around the world if the war lasts for a few weeks as energy prices surge. Some energy products will be in short supply, and that will hamper production at factories, he said.
Such prospects prompted investors to sell off stocks. In Canada, the S&P/TSX Composite Index tumbled 526.25 points, or 1.6 per cent, to 33,083.72. The index has shed 3.6 per cent in the past week.
In the U.S., the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite also fell. U.S. markets were partly under pressure from a Labour Department report that showed an unexpected loss of 92,000 jobs in February and increase in the unemployment rate to 4.4 per cent.
But the war in the Middle East and spike in oil prices were the major factors.
Already, OPEC member Kuwait has started to cut oil production with its storage facilities filling quickly, The Wall Street Journal reported. The newspaper quoted data provider Kpler as predicting Kuwait will have to shut off more output because its tanks would otherwise fill up in 12 days.
Energy prices have jumped as a result of the effective closing of the Strait of Hormuz, the narrow channel – 33 kilometres across at its narrowest point – that separates the Persian Gulf from the Gulf of Oman and the Indian Ocean. Normally, one-fifth of the world’s oil and LNG passes through the strait, then on to Asian and European markets.
In an effort to restart shipping, U.S. President Donald on Tuesday said he ordered his country’s development finance agency to provide discounted political risk insurance and guarantees for all commercial ships, especially energy tankers, sailing through the Gulf. In addition, the U.S. Navy will escort tankers through the strait, he said.
Oil prices have only climbed higher since then, as the war has intensified and expanded to more countries in the region, however.
Along with the Qatari minister’s warnings, oil prices are being pushed higher as the market struggles to assess how long Iran’s forces can withstand the U.S. and Israeli bombardments to keep jeopardizing energy facilities and vessels throughout the region, said Phil Flynn, energy market analyst at the Price Futures Group in Chicago.
The war has intensified in recent days. An oil tanker was attacked in the northern part of the Persian Gulf on Thursday. The attack sent the message that Iran was not ready to capitulate.
Mr. Trump fuelled more uncertainty on Friday when he said on social media that he would only accept an unconditional surrender by Iran.
“I think we’re going to have a lot of questions answered by Sunday night when the market reopens. It’s got to be a turning point. If Iran can keep this up through the weekend, and the market’s not convinced they’ll be able to get the strait open, there will be follow-though buying on the upside – panic buying,” Mr. Flynn said.
That could push WTI crude above US$100 a barrel next week, and Brent even higher, he said. However, if it appears Iran’s ability to retaliate is vastly weakened and the strait is secured, prices could tumble to the levels of a week ago, Mr. Flynn said.
Qatar is the world’s second-largest LNG producer. Mr. al-Kaabi, who is also chief executive of QatarEnergy, pointed out the company was forced to declare force majeure after its Ras Laffan LNG plant was hit in an Iranian drone attack on Monday.
That removes a fifth of global LNG supply, much of which had been destined for Asian markets. Meanwhile, European prices have nearly doubled in the past three days, Wood Mackenzie said in a report.
“The disruption threatens to raise long-term structural challenges for global gas and LNG markets similar to those seen following Russia’s 2022 invasion of Ukraine,” it said.
Editor’s note: This article has been updated to correct the surname of Saad al-Kaabi.