Oil prices are rising again after President Donald Trump called for the evacuation of Tehran. His comments, which stood in contrast with previous optimism that the Israel-Iran conflict wouldn’t escalate into a broader regional conflict in the Middle East, renewed volatility in financial markets. On Monday, there were reports that Iran had signalled that it wanted to deescalate hostilities with Israel and was willing to restart nuclear talks as long as the US doesn’t join the Israeli attack. The US President has cut short his G-7 visit, reportedly due to escalating tensions in the Middle East, which has sparked speculation about potential US involvement in the conflict.
The market remains on edge with the biggest fear a potential blockage of the Strait of Hormuz, which would lead prices to soar further. Almost a third of global seaborne oil trade moves through the Strait of Hormuz. So far, oil-exporting infrastructure has been avoided and there has been no blockage of the Strait of Hormuz.
Meanwhile, European natural gas prices rose to their highest level since early April on Monday, after jumping by 4.8% last Friday. Similar to oil, the biggest concern is that a further escalation would disrupt the Strait of Hormuz. Any disruptions to shipping through the Strait of Hormuz would also have a significant impact on the global LNG market. Qatar, which makes up around 20% of global LNG trade, uses this route to export LNG. There is no alternative route. This would leave the global LNG market extremely tight, pushing European gas prices significantly higher.
The European Commission is expected to propose a measure today to end the EU’s reliance on Russian pipeline and LNG supplies by the end of 2027, with a gradual ban on Russian gas imports starting next January and prohibit services to Russian companies at EU LNG terminals.