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Global energy markets surged sharply on Monday as escalating military tensions involving the US, Israel, and Iran disrupted critical Middle Eastern production and transit routes. 

Brent crude rose 6.7% to settle at $77.74 a barrel, after hitting an intraday high of $82.37, while US WTI gained 6.3% to $71.23.  Both benchmarks continued to climb in post-settlement trading following warnings from the Iranian military to target any commercial vessel passing through the Strait of Hormuz, effectively blocking a waterway responsible for around 20% of global oil and liquefied natural gas flows.

Physical supply losses intensified the geopolitical risk premium. Saudi Arabia temporarily shut its largest domestic refinery following a drone attack, while Qatar halted LNG production and prepared to declare force majeure on exports. Analysts compared the impact to an ancient siege severing a city’s aqueducts, as the sudden loss of flows prompted rapid hedging and short-term positioning across global markets.

The transit disruption triggered sharp regional price divergence. European Dutch TTF contracts jumped 40% to 44.51 euros per MWh, while the Asian JKM LNG benchmark surged 39% to $15.068 per mmBtu. By contrast, strong domestic production in North America provided a buffer, limiting US front-month natural gas futures to a more modest 3.5% gain at $2.96 per mmBtu.

Market participants are closely monitoring the duration of the Strait of Hormuz blockade against existing structural buffers. Global inventories remain near historical medians, covering roughly 74 days of demand, while OPEC+ plans to increase output by 206,000 barrels per day in April. Nonetheless, institutional models indicate that a three- to four-week transit disruption could rapidly deplete physical reserves, leaving markets vulnerable to further volatility.

Written by: Aiman Haikal