The US and Israel launched an aerial bombardment campaign against Iranian government and military targets on 28 February, killing Supreme Leader Ayatollah Ali Khamenei along with several senior officials.
Tehran said it has activated its succession plan and has begun retaliatory drone and missile strikes against Israel, the US, and several Gulf Arab states. US President Donald Trump urged Iranians to remain in their homes until the bombing ends and then to “take over your government; it will be yours to take.”
Oil prices, along with liquefied natural gas (LNG) benchmarks, have risen sharply amid geopolitical risks to one of the world’s most critical energy-producing regions.
At the time of writing, US crude was up more than 7.5% at around $72/bbl, while Brent crude had risen more than 8% to approximately $78.50/bbl. European natural gas prices climbed by almost 50% on Monday, 2 March, while US natural gas prices increased by more than 7%.
On 2 March, QatarEnergy said it had halted production of LNG and associated products “due to military attacks on QatarEnergy’s operating facilities in Ras Laffan Industrial City and Mesaieed Industrial City in the State of Qatar.”
The Independent Commodity Intelligence Services (ICIS) noted that Europe imports only a small share of Qatari LNG, as most cargoes are destined for Asia. However, the current situation has intensified competition for available LNG shipments, pushing global prices higher.
“European storage levels, at 30% at the start of February, add to vulnerability ahead of the summer refill season. If disruption persists into the second quarter, further upside in gas and potentially oil prices remains possible, particularly if shipping disruptions and insurance constraints continue to limit flows,” the ICIS said in a statement.
Also on 2 March, Saudi Aramco reportedly suspended some operations at its Ras Tanura refinery, the largest in Saudi Arabia, following a drone attack. Video of the incident was widely circulated on social media.
The Saudi Press Agency issued a statement confirming that two drones were intercepted by defense forces at around 7 a.m. local time. Falling debris caused a fire that “was immediately contained by emergency response teams,” the statement said, adding that no injuries or fatalities were reported. Some units at the 550,000 B/D-capacity refinery were shut down as a precautionary measure.
Israel issued a precautionary order to Chevron to suspend production at its Leviathan offshore gas field and to Energean to do the same at the Karish offshore gas field.
Global trade analytics provider Kpler said maritime traffic through the Strait of Hormuz had fallen by around 70% by the end of the day on 28 February. On 2 March, Kpler analysts said traffic had not halted altogether but noted that “real-time behavior signals acute stress,” as many ships in the region turned around or remained idle at sea.
Kpler added, “Should throughput fall below ~10% of typical volumes on a sustained basis, the market would be confronting structural supply impairment rather than precautionary hesitation.”
On 1 March, Wood Mackenzie issued a press release noting that global oil prices could soon reach $100/bbl as traffic through the Strait of Hormuz slows amid attacks on crude tankers. The consultancy said attacks on energy infrastructure have so far been limited but warned of a “grave risk” that the conflict could escalate.
"The key question is when do vessels re-establish export flows," Alan Gelder, senior vice president of refining, chemicals, and oil markets at Wood Mackenzie, said in a statement. "No doubt, tanker rates and insurance will increase dramatically, but these costs would only be a small part of the oil price impact associated with a curtailment of oil flows if they last for more than a few days."
The UK-based consultancy added that despite an OPEC+ agreement to increase production by more than 200,000 B/D in April, the move could be “moot” if the strait is not reopened.
An estimated 20% of the world’s oil supply moves through the narrow passage between Iran to the north and Oman to the south. Wood Mackenzie added that about 20% of global LNG trade also passes through the strait, much of it from Qatar.
Jorge Leon, senior vice president and head of geopolitical analysis at Rystad Energy, said the OPEC+ increase exceeded expectations while adding that the group is walking a “tightrope” as it responds to the immediate security situation while trying to avoid causing an oversupply later in the year.
“The bigger issue is physical reality: roughly one-fifth of global oil supply passes through the Strait of Hormuz, a vital artery for world trade, meaning markets are more concerned with whether barrels can move than with spare capacity on paper,” Leon said in a statement.
Oslo-based Rystad issued a press release on 28 February in the first hours after the outbreak of the Middle East war, predicting that any shutdown of the Strait of Hormuz would likely last only 1 to 2 weeks.
In a separate 2 March note, Wood Mackenzie said, “Tanker traffic through this waterway has effectively ceased for the time being after insurance coverage was withdrawn over the weekend. There are also reports of vessels in the Strait being attacked, with the tanker Skylight on fire and its crew evacuated.”
The Oman Maritime Security Center reported on 1 March that there were multiple injuries aboard a Palau-flagged oil tanker targeted 5 nautical miles north of Khasab Port in the Musandam Governorate of Oman. The official statement said 20 people, including 15 Indian nationals and five Iranian nationals, were evacuated.
In a separate incident on 2 March, Omani authorities confirmed another attack on a Marshall Islands-flagged oil tanker that killed one crew member of Indian nationality. The tanker, MKD VYOM, was attacked 52 nautical miles off the coast of Muscat by a remotely controlled boat.
A third tanker, the US-flagged Stena Imperative, was struck by two projectiles while in port in Bahrain and caught fire, according to the United Kingdom Maritime Trade Operations (UKMTO). The UKMTO said the fire was extinguished and all crew members were safe. The vessel isreportedly contracted to support the US Navy in its operations in the area.
Iran produces about 3.3 million B/D of crude oil and another 1.3 million B/D of condensate and other hydrocarbon liquids, most of which is sold to refiners in China, according to Semafor. Despite the escalation in hostilities, the US and Israel are not known to have directly targeted Iran’s oil and gas infrastructure.