Iran War Escalation Raises Oil and LNG Supply Risks as Qatar Pushes for US-Iran Deal

Reported US military strikes on Iran’s Qeshm Island have renewed concerns over a wider escalation in the Middle East, reversing some of the relief that followed earlier signs of diplomatic progress between Washington and Tehran. US officials described the operation as limited and defensive, aimed at preventing attacks on commercial vessels in the Strait of Hormuz. Iranian media also reported explosions around Qeshm Island.

The military developments came as Iran warned that it remains at its highest level of defensive readiness. Iranian Parliament Speaker Mohammad Bagher Ghalibaf said Tehran was prepared to respond to further US actions and cautioned Washington against what he described as another strategic mistake. A senior Iranian official also said the two countries remain far from reaching an agreement, despite ongoing mediation.

Oil Prices Rise as Gulf Supply and Shipping Risks Return

Oil prices rebounded by more than 2% after reports of the US strike, recovering part of the previous session’s decline. Goldman Sachs raised its December Brent crude forecast to $105 per barrel from $90, citing increased geopolitical risks to global oil supplies. A separate warning from the bank suggested Brent could reach $140 per barrel in 2027 if Gulf production remains depressed.

However, physical oil market indicators have also shown signs of improving supply. Exports from Saudi Arabia, the UAE, Iraq and Kuwait rose 10% last month to slightly above 15 million barrels per day, broadly returning to pre-war levels. Middle East supply recently exceeded demand for the first time since July, while the November Dubai crude contract traded at around a $2 per barrel discount to December.

Saudi Aramco reported that its average realised crude price reached $95.20 per barrel in the third quarter. The company said geopolitical developments and attacks on energy infrastructure had prolonged market disruptions and increased price volatility. It is exploring ways to increase overseas inventories and establish additional export routes, while the East West pipeline continues to provide supply flexibility.

LNG Disruption and Maritime Security Add to Global Risks

The International Energy Agency warned that the conflict could lead to a record 3% decline in global LNG supply this year, equivalent to around 20 billion cubic metres. Disruptions through the Strait of Hormuz have affected shipments from Qatar and the UAE, which previously accounted for a significant share of global LNG trade. The IEA estimates that global LNG output fell around 6% during the conflict, despite higher production from North America and other regions.

Europe is particularly exposed, with gas storage entering the 2026 to 2027 heating season at its lowest level since 2013. The need to replenish inventories could intensify competition for LNG and extend supply tightness into next year.

Maritime security risks have also increased. An Indian-flagged dhow, MSV Al Jusufi, was attacked near Limah off Oman’s coast, killing Indian seafarer Gandhar Nahim Ajij. Oman’s Coast Guard rescued the remaining 13 Indian crew members. The attacker and weapon used have not been identified.

Diplomatic efforts continue alongside the military developments. Qatar said its mediation team had made progress in discussions with both sides and that Washington and Tehran were reviewing proposals aimed at narrowing differences. Qatar also said regional countries were seeking to prevent further escalation. However, an agreement has not yet been reached.