Iran war threatens a prolonged hit to global energy markets

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DUBAI – The war with Iran could leave consumers and businesses worldwide facing weeks or months of

higher fuel prices

even if the week-old conflict ends quickly, as suppliers grapple with damaged facilities, disrupted logistics, and elevated risks to shipping.

The outlook poses a wider global economic threat, as well as a political vulnerability for US President Donald Trump leading into the midterm elections, with voters sensitive to energy bills and unfavourable to foreign entanglements.

“The market is shifting from pricing pure geopolitical risk to grappling with tangible operational disruption, as refinery shutdowns and export constraints begin to impair crude processing and regional supply flows,” JP Morgan analysts said in a research note on March 6.

The conflict has already led to the suspension of around a fifth of global crude and natural gas supply, as

Tehran targets ships

in the vital Strait of Hormuz between its shores and Oman, and attacks energy infrastructure across the region.

Global oil prices have surged 24 per cent this week to over US$90 (S$115) a barrel and are on course for their steepest weekly gains since the pandemic, driving up fuel prices for consumers worldwide.

A nearly complete shutdown of the Strait means the region’s giant oil producers – Saudi Arabia, the United Arab Emirates, Iraq and Kuwait – have had to suspend shipments of as much as 140 million barrels of oil, or equal to about 1.4 days of global demand, to global refiners.

As a result, oil and gas storage at facilities in the Middle East are rapidly filling, forcing oil fields in Iraq to cut oil production, and Kuwait and the United Arab Emirates most likely to cut next, analysts, traders and sources said.

“At some point soon, everyone will also shut in if vessels do not come,” said a ⁠source with a state oil company in the region, who asked not to be named.

Oil fields forced to shut across the Middle East as a result of the shipping disruptions could take a while to return to normal, said Mr Amir Zaman, head of the Americas commercial team at Rystad Energy.

“The conflict could be ended, but it could take days or weeks or months, depending on the types of fields, age of the field, the type of shut in that they’ve had to do before you can get production back up to what it once was,” he said.

Iranian forces, meanwhile, are

targeting regional energy infrastructure

, including refineries and terminals, forcing them to shut down too, with some of those operations badly damaged by attacks and in need of repairs.

Qatar declared force majeure on its huge volumes of gas exports on March 4 after Iranian drone attacks, and it may take at least a month to return to normal production ‌levels.

Qatar supplies 20 per cent of global LNG.

Saudi Aramco’s mammoth Ras Tanura refinery and crude export terminal, meanwhile, has also closed due to attacks, with no details on damage.

The White House

has justified the attack on Iran

saying the country posed an imminent threat to the United States, although it has not provided details. Mr Trump has also said he was concerned about Iran’s efforts to obtain a nuclear weapon.

When will the Strait be safe again?

A quick end to the war would soothe markets. But a return to pre-war supply and pricing could take weeks or months depending on the extent of the damage to infrastructure and shipping.

“Considering physical damage due to Iranian strikes, so far we have not seen anything that would be considered structural, although the risk remains as long as the war continues,” said Mr Joel Hancock, energy analyst, Natixis CIB.

The biggest question for energy supplies is how and when the Strait of Hormuz will become safe to shipping again.

Mr Trump

has offered naval escorts

to oil tankers and promised US insurance support to vessels in the region. But safety in the waterway may be elusive, as Iran has the capacity to

sustain drone attacks

on shipping for months, intelligence and military sources have said.

The conflict could also encourage countries to top up their strategic petroleum reserves in the weeks and months after the conflict ends, by exposing the dangers of thin inventories. That would increase demand for oil, and support prices.

In the meantime, the disruption in energy shipments is reverberating through supply chains and economies in import-reliant Asia, which sources 60 per cent of its crude oil from the Middle East.

In India, state-run Mangalore Refinery and Petrochemicals declared force majeure on petrol export cargoes, sources said this week, joining a growing number of refineries in the region unable to fulfill sales contracts due to lack of supply.

At least two refineries in China have cut runs. China, a big supplier to the region, has asked refineries to suspend fuel exports.

Thailand has also suspended fuel exports, while Vietnam has suspended crude shipments.

Disruption has given Russia a boost. Prices for Russian crude cargoes have risen, as the US has given Indian refiners a 30-day waiver to buy Russian crude to substitute for lost Middle East supply. Washington had pressured India to cut Russian oil imports under the threat of tariffs.

For European consumers, the crisis in gas supplies and the higher prices are a double whammy. The region was hit the hardest by the disruption to gas supplies due to sanctions on Russian energy imports after Russia invaded Ukraine in 2022.

Europe turned to LNG imports to substitute for Russian pipeline gas. And Europe now needs to buy 180 more LNG cargoes than it did in 2025 to fill gas storage to the levels needed before next winter.

The supply risks to the US are fewer, as the country has grown in recent years into the world’s largest oil and gas producer. But US crude and fuel prices rise in tandem with international crude markets, so pump prices for petrol and diesel are affected even if domestic supply is plentiful.

US average retail petrol, for example, hit US$3.32 a gallon nationally on March 6, up 34 US cents over last week, according to AAA. Diesel prices, meanwhile, hit US$4.33 a gallon, up from US$3.76 a gallon a week earlier.

Higher prices at the pump mark a major risk for Mr Trump and his fellow Republicans as they head into midterm elections in November.

“Gasoline prices are psychologically powerful,” said Mr Mark Malek, chief investment officer at Siebert Financial. “They are the inflation number that consumers see every single day.” REUTERS