The world’s energy markets are in crisis mode as the Iran conflict drives oil prices to near $92 a barrel and threatens to push global inflation to painful new heights. The price of Brent crude soared more than 25% in a single week — the largest such move since the start of the Covid-19 pandemic — leaving governments, businesses, and consumers scrambling to assess the damage.
The immediate trigger for Friday’s spike was Kuwait’s announcement that it was cutting output at some oil fields due to a lack of available storage. As conflict has disrupted shipping through the Gulf, oil that cannot reach buyers is accumulating in tanks across the region. With those tanks now nearing capacity, the fear is that production cuts will spread to other major producers, including Saudi Arabia and the UAE.
Energy consultants have put a stark deadline on the situation: storage in the two largest Gulf producers could be full within 20 days. At that point, producers would be forced to either shut down wells — a costly and time-consuming process to reverse — or find alternative solutions in an already-strained market. Neither option provides comfort to oil traders or the governments dependent on affordable energy.
Qatar’s energy minister painted a particularly dire picture, warning that without a ceasefire, all Gulf energy exporters could halt production within weeks, potentially driving oil to $150 a barrel. Qatar, which was already struck by an Iranian drone attack on a key LNG terminal, supplies around 20% of global LNG. Even if peace were restored today, the minister said, it would take weeks to months for gas exports to resume.
Markets around the world absorbed the blow painfully. European and UK stocks fell more than 5% on the week, Asian markets had their worst week since 2020, and airline stocks were devastated. The UK money market’s probability of a near-term interest rate cut fell from 80% to just 15%, and government bond yields hit multi-year highs. Gold, strangely, declined amid the uncertainty, losing 3.5% during the week.