Middle East gunpowder smoke affects LNG transportation, with European natural gas prices continuing to rise under the threat of conflict in Iraq.

The price of natural gas in Europe rose on Tuesday, mainly because traders are still pricing in the possibility of a significant escalation in military conflict between Israel and Iran, as well as the risk of Iran potentially blocking the Strait of Hormuz, leading to a significant increase in global energy supply risks. Traders also anticipate a substantial increase in European LNG prices. The European natural gas benchmark, TTF natural gas futures prices, rose nearly 2% on Tuesday after a slight increase in the previous trading day. On Tuesday, US President Donald Trump left the G7 summit early and called for American citizens to evacuate Tehran, further escalating tensions in the Middle East. However, shortly afterwards, he stated that his early departure from the Group of Seven (G7) summit in Canada had nothing to do with promoting a ceasefire between Israel and Iran. According to the latest reports, Trump stated that he hopes to "truly end" Iran's nuclear program and will decide on meeting with Iranian leadership upon his return to Washington. Following Israeli airstrikes on Iranian territory last Friday, a new round of Israeli-Iranian military conflict opened, causing international crude oil prices to rise over 13% on Friday, with European natural gas prices jumping 6% on the same day. For the European and global natural gas trading markets, the key risk is that an escalation in the situation may disrupt shipping in the Strait of Hormuz, a crucial waterway for liquefied natural gas (LNG) and oil transport. Since the Russia-Ukraine conflict in 2022, Europe has almost completely halted natural gas transportation via Russian pipelines and is highly dependent on LNG from the Middle East and North America. Although Iran had previously threatened to close the Strait of Hormuz, it has not done so. The actual delivery of LNG goods does not seem to be affected at the moment, but if LNG shipping vessels choose to avoid the Strait of Hormuz due to escalating tensions or if the strait is completely blocked by Iran, the delivery of LNG goods could face long delays, leading to a steep increase in LNG prices and European TTF natural gas futures prices. Although Europe's natural gas supply is currently sufficient, its high dependence on global liquefied natural gas transport makes it susceptible to significant price fluctuations when geopolitical factors pose risks to international energy trade. Europe's natural gas storage levels hit a three-year low last winter due to surging demand, and the region will need more fuel to replenish reserves in the coming months. If the war between Israel and Iran escalates, and the US military becomes officially involved in striking Iran, Iran has the capability to block the Strait of Hormuz for war-related reasons, a critical threat that could disrupt LNG shipping from Qatar, the world's largest exporter of LNG. The strait is also a vital channel for oil supply in the Middle East, leading traders to closely monitor the movements of oil tankers and LNG shipping vessels in the region. The Strait of Hormuz is the world's busiest oil transport channel, a narrow waterway just 21 miles wide that connects the Persian Gulf and the Indian Ocean, carrying 30% of global seaborne oil trade and 20% of liquefied natural gas supply, involving energy exports from Iran, Iraq, Kuwait, Bahrain, Qatar, Saudi Arabia, and the United Arab Emirates. Europe heavily relies on LNG - dependence continues to rise after losing most of the Russian pipeline natural gas supply Analysts Samantha Dart and Frederik Weichmann from Goldman Sachs stated that the conflict between Israel and Iran continues to have limited impact on the international natural gas market. Moderate imports from demand-heavy Asian countries allow more fuel for other regional buyers, such as Egypt urgently seeking alternative sources after a significant cut in supply from Israel. On the other hand, traders are also monitoring the EU's gradual plan to end its dependence on Russian natural gas energy supply (including pipeline natural gas and LNG from Russia) by the end of 2027 - currently, Russian natural gas supply (including pipeline natural gas and LNG) accounts for about 13% of the region's imported natural gas, significantly reduced compared to before the Russia-Ukraine conflict, when almost all of it came through pipeline natural gas. The European Commission will unveil detailed proposals to ban such flows on Tuesday. As of 8:52 am Amsterdam time, the European gas benchmark - Dutch TTF near-month natural gas futures prices rose 0.6% to 38.12 euros per megawatt hour, continuing the upward trend since last Friday.