Huatai Futures: Strait of Hormuz Close to Closure, Energy Markets Face Impact

After the weekend conflict in Iran erupted, the situation further escalated this week. Iran began attacking energy infrastructure in neighboring countries, with the largest Saudi refinery and Qatar’s liquefied export facilities targeted by drone strikes. Additionally, the Strait of Hormuz is nearing closure, with only a few oil tankers passing since March 1. Several insurance companies have canceled war risk coverage, prompting shipowners to proactively avoid the Strait of Hormuz. Overall, we believe that Iran’s blockade of the strait and attacks on energy infrastructure will have an unprecedented impact on the oil and gas markets. This round of Middle East conflict will serve as a stress test for the energy vulnerabilities of various countries. Although large strategic reserves can hedge against the risk of Strait of Hormuz shutdown, a prolonged closure (over 10 days) or attacks on Saudi oil fields could lead to an actual energy crisis. Compared to crude oil, the overseas refined oil and natural gas markets are more fragile. Due to sanctions on Russia, refinery capacity reductions, and Europe’s low natural gas inventories, there is no buffer similar to the crude oil SPR. Disruption of Qatar’s LNG exports would cause a significant supply interruption, and reduced Middle Eastern refined oil exports would be difficult to compensate for with other sources. Currently, amid intense conflicts between Iran and the US-Israel alliance, crude oil, refined oil, and natural gas prices still face significant upside risks. Close attention should be paid to developments in the Middle East, and a cautious approach is recommended. (Huatai Futures)