Energy markets on edge as US-Israel war on Iran threatens oil and gas supplies

Iran's trump card in the event of any US or Israeli war was that it could close the Strait of Hormuz to shipping overnight, thus seriously impacting oil and gas supplies and having the world pressure an aggressor to cease their offensive.

Now that this war has become reality, there are signs that it is seriously impacting energy markets, with Iran hitting tankers, ports, and oil facilities in the oil and gas-rich Gulf region.

Shortly after US-Israeli strikes killed Supreme Leader Ayatollah Khamenei and senior Iranian figures, Tehran said it was shutting the Strait of Hormuz, with vessels in the area receiving electronic warnings not to cross the waterway, which around 20-30 percent of the world's oil passes through.

On Sunday, at least three tankers in Gulf waters were damaged in suspected Iranian attacks, including off the coast of Musandam - a chokehold for global energy supplies. The cost for the region could be huge, with 20 million barrels of oil making its way along this route every day in 2024, much of it for Asian markets.

The response from Iran has been far more aggressive than any previous conflict with Israel and the US, with the targeting of civilian infrastructure in Gulf states appearing to be an attempt to drag the GCC into the war, or create enough economic damage that the war cannot be sustained for long.

The threats from Iranian missiles and drones have seen logistics companies tell their captains to anchor in friendly ports outside the conflict zone as Iran targets vessels in Gulf waters.

"As a precautionary measure, MSC has instructed all vessels currently operating in the Gulf region, as well as those en route to the area, to proceed to designated safe shelter areas until further notice" the shipping company said in a statement.

More than 200 vessels, including oil and liquid natural gas tankers, have also dropped anchor around the Strait of Hormuz and surrounding waters, according to Reuters, with uncertainty over how long the war will continue and to what extent shipping will be targeted.

It is a situation reminiscent of the 'tanker wars' during the Iran-Iraq war, when shipping was also targeted by Tehran, sending the price of oil skyrocketing.

This time around, Brent crude jumped by 10 percent to about $80 a barrel on Sunday and could rise as high as $100 a barrel by the end of the week.

The OPEC+ group of oil producers has agreed to raise output by 206,000 barrels per day (bpd) from April, but many think this will not be enough to cope with a huge shortfall in supplies, even if alternative routes are found, including via land-based pipelines.

Iran has also targeted ports that are critical to oil supplies, such as the Omani port of Duqm on Sunday, which has been touted as a possible important logistics point outside the Strait of Hormuz for GCC oil and gas if war in the region ever broke out.

Alternative routes for shipping include around the Cape of Good Hope, which would be hugely expensive, and via the Red Sea, which would be vulnerable to attacks by Tehran's Yemeni ally, the Houthis.

So far, they have avoided targeting shipping, but attacks on Israeli-linked vessels during the war on Gaza, had a huge effect on global logistics, and energy experts are waiting for the Houthis' next move.