Oil spikes above $112 as Iran targets Qatar gas hub in escalation

Following Iran's attack on energy facilities throughout the Middle East, which constituted a major escalation in the conflict with the United States and Israel, oil prices extended their gains on Thursday.

The price increase, which included the benchmark Brent crude soaring by up to $5 a barrel, came after an earlier strike on the South Pars gas field.

Brent crude prices surged above $112 per barrel on Thursday after settling nearly 4% higher in the previous session.

The price of West Texas Intermediate (WTI) crude is currently trading at its greatest discount to Brent crude in 11 years.

WTI was last at $96.67 per barrel, up 1.3% from the previous close.

This widening gap is attributed to the release of oil from US strategic reserves and increased freight costs.

Conversely, renewed assaults on Middle Eastern energy infrastructure have driven up support for Brent's price.

Tensions build across the Middle East

On Wednesday, QatarEnergy reported that Iranian missile attacks on Ras Laffan, the location of Qatar's main Liquefied Natural Gas (LNG) processing operations, caused widespread damage to its energy hub.

Saudi Arabia stated that it intercepted and destroyed four ballistic missiles launched toward Riyadh on Wednesday, as well as an attempted drone attack on a gas facility.

Before its attacks, Iran issued evacuation warnings for several oil facilities in Saudi Arabia, the UAE, and Qatar, as it prepared to retaliate for strikes against its own energy infrastructure in South Pars and Asaluyeh.

South Pars is the Iranian part of the world's largest natural gas field, which Iran shares with US ally Qatar across the Gulf.

US President Donald Trump stated late Wednesday that Israel was responsible for the attack on the South Pars gas field.

He specifically clarified that neither the United States nor Qatar had any involvement in the incident.

Trump further issued a warning; Israel would refrain from future attacks on Iranian facilities in South Pars unless Iran launched an attack against Qatar.

He also cautioned that the US would retaliate if Iran took action against Doha.

“This raises fears of a more prolonged disruption to Persian Gulf energy supplies,” Warren Patterson, head of commodities strategy at ING Group, said in a note.

“The move to strike Iranian energy assets is odd, given that the US administration has been trying over the last couple of weeks to ease the upward pressure on oil prices.”

Gas markets in turmoil

Meanwhile, natural gas prices jumped more than 6% on Thursday morning, with the Dutch Title Transfer Facility natural gas prices last at EUR 54.662.

Iran's retaliatory strikes against neighboring countries pose a greater risk to the gas market than any other commodity.

The Ras Laffan Industrial City (RLIC) site is a major hub, spanning 295 square kilometres and housing refineries and petrochemical plants.

Qatar utilises this location to export 105 billion cubic meters (bcm) of liquefied natural gas (LNG), which constitutes almost 20% of the world's LNG trade.

However, the specific section of the RLIC that has been affected is currently unknown.

“Damage to the LNG facilities means that the troubles for global gas markets aren't just about when flows through the Strait of Hormuz resume, but how long repair work at the sites might take,” ING’s Patterson said.

“Even if it turns out that the LNG facilities are largely untouched, the market will have to price in a higher risk premium, given the growing threat to energy infrastructure in the region.”

The South Pars gas field, which is responsible for approximately 70% of Iran's total natural gas production, has been targeted among Iran's energy assets.

While the extent of the damage remains uncertain, this incident clearly elevates the risks to Iranian natural gas exports destined for Turkey, Iraq, and Armenia.

Iran supplies Turkey with approximately 8 billion cubic meters (bcm) of imports annually.

“Potential disruptions to these flows would leave the country looking elsewhere for supply, potentially increasing reliance on Russia for additional pipeline gas,” Patterson added.