Before the war with Iran, gasoline in New Mexico averaged $2.76 a gallon. By March 14 it was $3.86, a jump of nearly 40%, the steepest in any US state. Diesel across the country had climbed 42% since the fighting began.
The war started on February 28, when the United States and Israel attacked Iran. Iran answered with strikes on US bases in several Gulf states, and the International Relations Review reported that some of those strikes also hit energy infrastructure and civilian sites. Iran’s Supreme Leader, Ayatollah Ali Khamenei, had already been killed. Iran effectively closed the Strait of Hormuz, the passage between Oman and Iran that carries roughly one-fifth of the world’s oil.
Oil, gas and fertilizer
The review put the disruption at around 16% of the world’s oil supply, double the effect of the 1970s oil shock. Brent crude rose 3% to $103 a barrel, almost 38% above where it stood when the conflict began. Iran also hit Saudi Arabia’s Ras Tanura, a 550,000 barrel-a-day refinery attached to the world’s largest oil export terminal.
Gas took a harder blow. Most liquefied natural gas moves through the strait, and the review put the loss of Middle Eastern supply at almost 130 billion cubic metres, or 20% of global LNG flows. Drone attacks in Qatar, a major LNG exporter, shut down another 20% of world LNG trade. That is 50% more volume than the 2022 Russian gas crisis affected. Saudi Arabia and the UAE can reroute only 25% of the gas that normally crosses the strait.
The waterway is an “irreplaceable chokepoint” for up to 15 million barrels of crude a day. It also accounts for roughly a third of global trade in urea, the most widely used fertilizer.
Who feels it most
Asia and Europe depend most heavily on imported energy. European natural gas prices surged by as much as 50% in the first days. Wholesale prices there could triple if the strait stayed shut for three months, the review said.
Asian share markets recovered from steep early losses but still sat about 1.5% lower. Most Asian countries, Malaysia aside, import more oil than they export. China gets 13% of its seaborne oil imports from the region. Thailand banned petroleum exports and began drawing on a national fuel fund to shield consumers.
Financial markets showed the strain. The yield on the two-year US Treasury note fell at first, as investors usually rush to safe assets in a crisis, then rose again, which the review read as growing worry about inflation. The Dow Jones Industrial Average and the S&P 500 edged lower.
Many buyers are looking to the United States for supply. The US Strategic Petroleum Reserve holds more than 400 million barrels, enough to cover 125 days of demand. Expanding US shipments would take years of construction, the review noted.
