A sharp surge in natural gas prices triggered by the escalating Middle East conflict is fuelling fears of a renewed energy shock for Europe and parts of Asia, analysts warned Tuesday, raising the spectre of slower growth and fresh fiscal strain.
Global gas markets have rallied strongly this week amid concerns that a prolonged disruption to shipments through the Strait of Hormuz could squeeze supplies of liquefied natural gas (LNG). The narrow waterway between Oman and Iran handles roughly one-fifth of global LNG trade, making it one of the world’s most critical energy chokepoints.
Europe’s benchmark gas contract, the Title Transfer Facility (TTF), jumped 35 percent on Tuesday to more than 60 euros (about $69.64) per megawatt-hour. Prices are up around 76 percent over the week.
In Asia, the Japan-Korea Marker (JKM), the main benchmark for Northeast Asian LNG deliveries, climbed to a one-year high, trading near 43 euros per megawatt-hour. UK gas prices also posted sharp gains.
The spike follows news that Qatar one of the world’s largest LNG exporters paused production on Monday after Iranian drone strikes targeted facilities at Ras Laffan and Mesaieed industrial cities. Analysts at Goldman Sachs estimated the halt could reduce near-term global LNG supply by around 19 percent.
Adding to market anxiety, a senior Iranian Revolutionary Guard official reportedly said Tehran had closed the Strait of Hormuz to ships, warning that vessels attempting to pass could be attacked. US officials, however, said the route remained open.
Europe is particularly exposed. Around a quarter of the continent’s total gas supply comes from LNG, according to industry estimates. With roughly 20 percent of global LNG production located behind the Strait, a sustained disruption could trigger a supply squeeze reminiscent of the 2022 energy crisis following Russia’s invasion of Ukraine.
“We are much more concerned about European gas prices than we are about oil prices,” said Chris Wheaton, oil and gas analyst at Stifel, in a note.
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Energy stocks reacted swiftly. Shares in Norwegian producer Equinor hit a 52-week high on Tuesday, rising more than two percent after surging over eight percent in the previous session, reflecting expectations that higher gas prices could boost earnings for exporters.
Goldman Sachs warned that a month-long halt to flows through Hormuz could drive TTF and JKM prices towards 74 euros per megawatt-hour a level that previously triggered large demand reductions during the 2022 crisis. European gas prices peaked at 345 euros per megawatt-hour in August 2022, pushing up household energy bills and contributing to a cost-of-living crisis across the region.
In a separate note, Goldman raised its April TTF forecast to 55 euros per megawatt-hour, up from 36 euros previously, and lifted its second-quarter average forecast to 45 euros.
Higher energy prices risk weighing on economic growth. Goldman analysts estimate that a sustained 10 percent rise in energy prices over four quarters would shave about 0.2 percent off gross domestic product in both the United Kingdom and the euro area. Norway, a major oil and gas exporter, could see a modest 0.1 percent boost, while Switzerland would be broadly unaffected due to its heavier reliance on nuclear and renewable energy.
Asia is also vulnerable. According to Invesco, nearly 58 percent of India’s LNG imports come from the Middle East, while 27 percent of Singapore’s LNG imports originate in the region. China sources roughly 26.6 percent of its LNG from Middle Eastern suppliers.
Analysts warn that countries heavily dependent on imported energy with limited fiscal space including Japan, India and Turkey could face the greatest strain if the conflict drags on.
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“A protracted conflict that leads to further disruption in energy production and shipping raises the risk of stagflation and could add to fiscal pressures,” said Elias Haddad, global head of markets strategy at BBH.
With markets already on edge, the trajectory of the war and the security of energy flows through Hormuz will be pivotal in determining whether the current price spike evolves into a broader economic shock.
