Natural gas prices will be impacted if Middle East conflict spreads: Experts

The energy market, in general, has been sensitive to a war between Israel and Hamas as the Middle East is a major producer.

The international gas market would be impacted if the conflict between Israel and Hamas spills over to other Middle Eastern nations and leads to supply disruptions, said energy experts.

Concerns over geopolitical tensions in the volatile region have led to a jump in spot prices of liquefied natural gas (LNG). The European natural gas benchmark surged 41 percent last week, with prices soaring to a seven-month high.

“The conflict between Israel and Hamas has been localised till now. If it spreads to Iran or any other Middle Eastern country, then it can disrupt gas supplies. A lot of risk is involved as the Middle East has the maritime route through which a lot of commodities pass. And if Egypt gets involved then there is the Suez Canal,” said Hitesh Jain, Lead Analyst, Yes Securities.

“Prices (of natural gas) have been moving up as the market is considering the prevailing risk, which has not materialised yet, but is possible in the future. As of now, prices are on the rise mainly because of risk assessment,” Jain added.

The energy market, in general, has been sensitive to a war between Israel and Hamas as the Middle East is a major producer. Crude oil prices jumped around 5 percent after Hamas launched a large-scale surprise attack on Israel on October 7. Oil prices, which had spiked immediately after the war, have comparatively cooled down but still remain elevated.

Other factors contributing to the increase in gas prices in recent weeks include a potential workers’ strike in Australia and a gas pipeline leak in Europe.

“Multiple factors have led to the recent flare-up of prices as there have been disruptions in one of the producing countries, and (there are worries about) the possible involvement of other Middle Eastern countries in the war between Israel and Hamas,” said an analyst, on condition of anonymity.

Experts believe that the approaching winter is another factor that is adding to the price hike. However, they pointed out that gas prices are unlikely to mirror last year’s spike because Europe is well stocked and global demand has remained relatively muted.

As of September, the natural gas inventory in Europe was at a record high, with stocks 23 percent higher than the average level. “Europe has been well stocked this year. Also, there are about five plants in different countries that are going to start from now till the winter, which is expected to keep supply healthy in the market. Compared to this, global demand has not been strong. These factors will help in prices not shooting up like last year,” said Prashant Vasisht, Vice President and Co-Head, ICRA.