Here's a fun fact about markets: they have a memory. And right now, the European gas market is remembering something very specific from early 2022, and it's not happy about it.
The last time benchmark European natural gas prices doubled in a matter of days was in February and March of 2022. You might recall what happened next: Russia invaded Ukraine, oil shot past $100 a barrel, natural gas prices went to the moon, and Europe had to scramble to find energy anywhere it could. The aftermath was, to put it mildly, brutal. We got the sharpest inflation surge since the 1970s, one of the fastest global interest rate hiking cycles in history, and stock markets tumbled as easy money vanished.
Now, on the fourth day of a war in Iran, energy markets are under acute stress again. And the warning signal flashing isn't just amber; for gas, it's bright red.
Why a Strait in the Middle East Matters to Your Gas Bill
On Monday, a commander of Iran's Revolutionary Guard Corps declared the Strait of Hormuz "closed." That statement alone was enough to send shivers through the global energy complex.
Think of the Strait of Hormuz as the world's most important energy hallway. It's narrow, it's crowded, and about 20% of all the crude oil traded globally passes through it every single day. It's also a vital route for shipments of liquefied natural gas (LNG) heading to Europe and Asia.
Oil prices reacted immediately. Crude, as tracked by the United States Oil Fund (USO), rallied 8% on Monday and tacked on another 9% in early Tuesday trading. That's a two-day jump of roughly 14%, the sharpest move since March 2022.
Brent crude briefly climbed above $82 a barrel, with WTI above $77. According to Bridget Payne, head of energy forecasting at Oxford Economics, the oil market itself is still relatively well supplied. Saudi Arabia and the UAE have spare production capacity that could theoretically offset any lost output from Iran.
The real problem isn't the oil in the ground; it's the oil on the water. Rerouting flows away from the Strait of Hormuz is incredibly difficult. Alternative trade routes can only handle about one-third of the volume that normally sails through that narrow passage.
Gas Markets Are the Canary in This Coal Mine
If oil is worried, gas is panicking.
European natural gas prices jumped 40% on Monday. Then they jumped another 30% on Tuesday. In just 48 hours, benchmark prices have nearly doubled. That's a move we haven't seen since the early, chaotic days of the Ukraine war.
"Gas markets are more exposed because buffers are weaker," Payne said. And she's right. The situation for gas is structurally more fragile.
Take Qatar, the world's second-largest exporter of LNG. It has no alternative export route that bypasses the Strait of Hormuz. None. Reports indicate Iranian drone strikes have already shut down production at Qatari liquefaction plants. Those plants represent roughly one-fifth of the entire global LNG supply.
Kristian Kerr, head of macro strategy at LPL Financial, points out that oil and gas markets are acting as real-time barometers for the conflict. Their sustained rise suggests the situation isn't calming down.
Jack Reid, an economist at Oxford Economics, added a crucial layer. While Qatari LNG only accounts for about 11% of Europe's direct LNG imports, a global disruption changes the game entirely. European buyers would be forced into a brutal bidding war with Asia for every available cargo of gas elsewhere in the world.
This comes at a bad time. Europe is already on track to see its gas storage levels fall below 20% by the end of the current refueling season. Even the EU's more lenient target—to have storage 80% full by December 1—could be tough to hit if this disruption drags on.
