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Rising tensions in the Middle East present a growing threat to global oil and gas flows, analysts warn, particularly if conflict spreads to the Strait of Hormuz. 

Attacks by Iran-backed Houthis on vessels in the Red Sea have increasingly prompted fuel tanker operators to take the longer route around Africa’s Cape of Good Hope. 

Although experts have warned that geopolitical uncertainty could translate into price volatility, that has yet to materialise significantly for energy-related commodities, with robust production and supply keeping prices stable. 

However, with both Houthi attacks and retaliatory strikes from western powers on the rise – as well as attacks on US military facilities in the wider Middle East – concerns are growing that an escalation in the conflict could upset that balance. 

“The bigger upside risk for the oil market is if tensions in the Middle East spread, which starts to have an impact on oil production or cuts off oil flows that cannot be rerouted,” ING says in its Energy Outlook 2024 report. 

“This would be the case if we were to see any disruption around the Strait of Hormuz, which sees in the region of 20m/d of oil moving through it.” 

That is equivalent to around a fifth of the world’s oil and a quarter of LNG flows passing between Oman and Iran, writes Simone Tagliapietra, an energy analyst at Brussels-based think tank Bruegel. 

“Should transit be disrupted in the Strait of Hormuz, even for a few days, the repercussions for global oil and gas prices would be substantial,” he says. 

“When it comes to the risk of regional escalation, it should be noted that the repercussions of any act of sabotage against oil and gas infrastructure in the Middle East and North Africa region would be equally substantial.” 

Tagliapietra adds that another risk is if the US chooses to up enforcement of sanctions against Iran, “significantly cutting its oil exports”. 

“Global oil prices would then rise substantially, pushing inflation higher and this would further complicate the efforts of central banks to bring inflation under control,” he says. 

US think tank The Washington Institute said in November last year that Iranian oil exports have more than trebled over the past three years, with China the main buyer. 

It said the trend is “a consequence of relaxed US sanctions enforcement” under the Biden Administration.  

Efforts to revive the nuclear agreement with Iran have fallen flat, but the institute says Washington currently “opts not to enforce” restrictions as stridently as in the past. 

International Energy Agency data shows Iran’s supply of crude oil was 3.15 million barrels per day in December, from a sustainable capacity of 3.8 million. 

If US intervention lowers Iranian exports to pre-Biden levels, Saudi Arabia is the only individual nation with sufficient spare capacity to fill the gap. 

The agency says that in December, the kingdom could produce an additional 3.22 million barrels per day, equivalent to around 60% of all unused capacity among Opec+ countries.