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Oil and gas prices surged and global stocks fell on Monday as the widening conflict in the Middle East disrupted energy supplies from the region and threatened to hit the global economy.
In a marked escalation from the weekend, one of Saudi Arabia’s largest oil refineries was attacked by drones, forcing a shutdown. Analysts warned the escalating conflict could now spread to energy infrastructure across the Gulf, potentially causing a prolonged rise in oil prices.
In the first trading session since the US and Israel launched air strikes against Iran on Saturday, Brent crude, the international benchmark, soared as much as 13 per cent in early trading.
It later fell back to trade 8.5 per cent higher, still its biggest daily jump in nearly three years. European gas prices jumped 24 per cent as worries grew about a disruption to liquefied natural gas exports from Qatar — one of the world’s largest producers and a key supplier to China, which depends on the Gulf state for around a quarter of its LNG.
Gold rose and global stocks fell, with the Stoxx Europe 600, Europe’s benchmark index, down 1.3 per cent, led by declines in airlines and hotel groups.
The sharp moves in prices came as the war in the Middle East entered its third day, with hostilities escalating across the region. US-Israeli strikes on Tehran continued, while Israel began striking Hizbollah targets across Lebanon.
On Monday, a drone strike forced the shutdown of Saudi Arabia’s huge Ras Tanura refinery, in the first attack on energy infrastructure in the conflict.
Ras Tanura, which was previously targeted by Houthi militants in 2021, is the largest oil refinery on the Gulf coast and can process 500,000 barrels of crude a day. It is also the main export terminal for Saudi oil in the Gulf.
“It’s a huge escalation,” said Ali Shihabi, a Saudi commentator close to the royal court. “Saudi Arabia, which wanted to stay out of the war, will have to decide how to respond.”
No one was injured in the attack and the shutdown of the refinery was precautionary, according to one person close to the situation. But analysts said the move was a sign that an increasingly desperate Iran is willing to draw the energy sector into the conflict.
“Gulf energy infrastructure is now squarely in Iran’s sights. The attack is also likely to move Saudi Arabia and neighbouring Gulf states closer to joining US and Israeli military operations against Iran,” said Torbjorn Soltvedt, principal Middle East analyst at risk intelligence company Verisk Maplecroft.
Meanwhile, oil and LNG tankers continued to wait at the mouth of the Strait of Hormuz, the narrow waterway at the mouth of the Gulf through which a fifth of the world’s oil and gas flows.
Shipping through the Strait has slowed to a standstill after insurers began withdrawing coverage and a number of vessels were attacked on Sunday, including a tanker chartered by oil company Saudi Aramco that was carrying 500,000 barrels of gasoline.
“The implications of this conflict for the world economy depend on the flow of oil and gas through the Strait of Hormuz,” said Norbert Rücker, head of economics at Julius Baer. “The most feared scenario is not its closure, but serious damage to the region’s key oil and gas infrastructure.”
Analysts at Morgan Stanley said a significant amount of crude already outside the Gulf could ease tightness in the oil market.
Martijn Rats, an analyst at the bank, said Saudi Arabia had raised exports by an additional 1.5mn barrels a day so far this year, and calculated that the kingdom could sustainably pipe 7mn b/d to its terminal on the Red Sea, bypassing the Strait of Hormuz. China had also stockpiled close to 1mn b/d of crude over the past six months to weather any disruption.
Futures tracking the S&P 500 indicated the index would drop 1 per cent when Wall Street opens. Those tracking the tech-heavy Nasdaq index were down 1.4 per cent.
In European markets, International Airlines Group, the owner of British Airways, was down 5 per cent, while Air France-KLM dropped 8.4 per cent. French hotel chain Accor weakened 8.7 per cent.
Gold was up 2.2 per cent to $5,390 a troy ounce, as investors sought haven assets, while the dollar rose 0.7 per cent against a basket of other major currencies.
Stock markets across Asia declined on Monday with Japan’s Topix and Hong Kong’s Hang Seng down 1.5 per cent and 1.4 per cent respectively.
Additional reporting by Andrew England in London