Key Points

While the escalation is bullish for near-term oil and gas prices, analysts at S&P Global Commodity Insights say it is unlikely to sustain price pressure unless it directly disrupts oil exports.

"The attack is obviously bullish near term for oil prices, but the key is whether oil exports will be affected. When Iran and Israel exchanged attacks last time, prices spiked, then fell once it was clear the situation wasn't escalating and oil supply was unaffected," said Richard Joswick, head of near-term oil analysis at S&P Global Commodity Insights.

On June 13, Dated Brent surged to a two-month high of USD 75.19/b, marking the biggest single-day jump in oil prices in nearly five years, according to Platts, part of S&P Global Commodity Insights.

Middle East sour crudes also responded sharply, with Platts assessing front-month cash Dubai at USD 72.50/b, up 5.7 per cent from the prior day.

While no damage has been reported to Iran's energy infrastructure so far, Joswick cautioned that a broader Iranian retaliation, especially targeting oil infrastructure or regional shipping, could significantly elevate risk premiums.

"If Iranian crude exports are disrupted, Chinese refiners, the sole buyers of Iranian barrels--would need to seek alternative grades from other Middle Eastern countries and Russian crudes. This could also boost freight rates and tanker insurance premiums, narrow the Brent-Dubai spread, and hurt refinery margins, particularly in Asia," Joswick noted.

According to Platts OPEC Survey, Iran pumped 3.25 million b/d of crude in May, with roughly 2.2 million b/d of refining capacity and 600,000 b/d of condensate splitting capacity. However, exports dipped below 1.5 million b/d in May as floating storage levels surged amid rising tensions.

The global data intelligence firm said that the conflict has also disrupted Israeli gas production. The energy ministry confirmed temporary suspensions at the Leviathan and Karish platforms, which account for around 1.8 Bcf/d (50 million cm/d).

These outages halt all pipeline gas exports to Egypt and Jordan, totalling 1.2 Bcf/d (35 million cm/d).

According to Laurent Ruseckas, Executive Director, S&P Global Commodity Insights, "The shutdowns are bullish for LNG prices, initially on sentiment, and possibly more if they persist. Egypt and Jordan will need to replace Israeli imports, and that could quickly build demand for LNG cargoes."

While no immediate LNG supply gap is expected due to infrastructure bottlenecks, replacement demand could drive up benchmarks, including JKM, NWE, and TTF, if the situation prolongs. Ruseckas noted that Egypt's only active FSRU, Hoegh Galleon at Ain Sokhna, is already operating at full capacity. Two other FSRUs, Energos Eskimo and Energos Power, remain offline for maintenance.

If brought online quickly, and assuming grid readiness, these vessels could help manage the shortfall. Otherwise, Egypt and Jordan may turn to fuel oil and gas rationing.

"To fully replace Israeli pipeline imports, Egypt and Jordan would require another 10-12 LNG cargoes per month," Ruseckas added.

The commodity insights firm said in the report that the Strait of Hormuz remains a critical chokepoint, with nearly 20 per cent of global LNG trade and a significant portion of crude exports transiting through the narrow waterway.

A serious escalation involving shipping routes could deepen disruptions, the report added.

"There is a risk to LNG supply if Iran retaliates by threatening shipping through the Strait of Hormuz," as per analysts from S&P Global Commodity Insights.

The report added that while current freight rates for Red Sea transits have remained steady, heightened conflict could reverse that trend.

The ongoing conflict between Houthi rebels and commercial shipping has already slashed Red Sea transits by 60 per cent since late 2023, according to Platts tanker tracking data.

The longer-term impact on oil and gas markets will depend on whether the conflict escalates into a regional war or remains contained. As Joswick emphasised, "price risk premiums tend to fade unless actual supply is disrupted." For now, markets remain on edge, with every new development carrying the potential to tip the balance.

- ANI