After Qatar warns that all Gulf production could stop in days, oil prices reached their highest level in two years.

 

Qatar Energy's operating facilities in Mesaieed Industrial City, south of Doha, where production of liquefied natural gas has halted (Image: Getty Images)

After Qatar's energy minister issued a warning that he anticipates that all oil and gas exporters in the Gulf will cease production within days, oil prices have reached their highest level in more than two years. Saad al-Kaabi told the Financial Times that the Middle East conflict could "bring down the economies of the world." The Middle East is a key region for global energy supplies and shipping routes. On Friday, Brent crude oil rose by more than 9% to a level above $93 a barrel, which is the highest level since fall 2023. Not only can rising oil prices affect how much it costs to fill up your car, but they can also affect the cost of some heating, food, and imported goods.

Read More: Military chief defends UK response to Middle East conflict

There are warnings that if the price of oil and gas—which has also increased this week—continues to rise, it could fuel inflation in major global economies like the United Kingdom and the United States, where it has been generally falling. If the Iran conflict continues over the next few weeks, according to Kaabi, oil prices could reach $150 per barrel. "If this war continues for a few weeks, GDP growth will be impacted worldwide," he stated to the Financial Times. The cost of energy for everyone will rise. Some goods will be out of stock, triggering a chain reaction of factories that are unable to supply." Prices for gasoline and diesel are already rising for UK consumers. The RAC reported on Friday that since Saturday, prices for diesel and gasoline had increased by 6p and 3.7p, respectively, reaching a 16-month high. The UK's competition regulator, the Competition and Markets Authority, claims to be "closely monitoring" the development of gasoline station prices. Although the regulator Ofgem's energy price cap has already been established until July, household energy bills may also increase. There have been concerns that the current crisis could have the same effect as Russia's invasion of Ukraine, but price increases for oil and gas have not yet reached the heights of 2022.

Asked about the energy minister's warnings, Jorge Leon, analyst at Rystad Energy, told the BBC the situation poses a "real risk to the global economy".

 According to him, "I think we're on the edge of trying to understand if this is a very brief energy crisis with limited implications, or if we're at the beginning of a massive economic and energy crisis." "The likelihood of seeing very significant implications for the energy system and the global macroeconomic outlook is much higher if this lasts for more than two weeks." Liquefied natural gas (LNG) and oil are major exports from Qatar. QatarEnergy said this week that "military attacks" on its facilities had stopped it from producing LNG. It declared "force majeure" - a clause freeing it from liability for failure to supply due to events outside its control - and Kaabi said he believed all other energy exporters would have to follow suit in the next few days if the war continues.

After Qatar warns that all Gulf production could stop in days, oil prices reached their highest level in two years.

 Even if the war ended now, it would take "weeks to months" to resume normal output, according to QatarEnergy CEO Kaabi. The Strait of Hormuz typically receives daily shipping of approximately a fifth of the world's oil supply. However, since the US-Israeli conflict with Iran began last weekend, almost all traffic through the narrow passageway has ceased. Blocking the strait could make goods and services more expensive globally, and hit some of the world's biggest economies, including China, India and Japan, which are among the top importers of crude oil passing through the waterway.

 With pipelines, the United Arab Emirates and Saudi Arabia can transport oil without using the strait. However, analysts have cautioned that the price of oil and its transportation will rise the longer there are threats to ships passing through the strait. Rystad Energy's Leon said if countries in the Gulf cannot export oil they will need to store it, and, when this storage runs out, stop production.  Depending on how much storage they have, they can reach that point in days or a few weeks. Oil prices exceeding $100 a barrel is a "realistic scenario", but the important thing is how long they stay at that level, he said.

 Governments across the world at that point would likely release their oil reserves, as happened after the full-scale invasion of Ukraine by Russia.

 Lindsay James, investment strategist at Quilter, said a prolonged halt to all oil and gas production in the Gulf was an "extreme scenario".

 Market moves suggest investors expect disruption to traffic through the Strait of Hormuz will be resolved quickly, she said, but added that the risk grows every day that the conflict will be more prolonged than first thought.

 She stated, "The pressure will primarily be felt by households in the form of energy prices rather than a broad inflation shock." "Because a significant amount of the food that is imported into the UK does not rely on Gulf shipping routes, for instance, it is unlikely that the UK food inflation will be significantly affected. "The bigger economic risk comes from persistently higher energy costs, which can weigh heavily on growth."

Source: BBC