Iran's threat to close the Strait of Hormuz as a response after the US dropped 'bunker buster' bombs on its nuclear enrichment sites could be "economically disastrous" for UK and European energy prices, analysts warned.
Stifel oil and gas analysts said they currently see "a low probability of any closure being sustained beyond a few weeks".
However, they also see commodity markets as likely to "price in tail-risk of serious disruption to energy markets", both oil and liquid natural gas.
While there are bypass pipeline routes that could offset some of crude oil flow if the Strait is blocked, the price required to balance oil markets given a complete loss of 5-7 millions of barrels a day, the analysts think, is $200 a barrel, "as the supply/demand deficit would be similar to that after the Russian invasion of Ukraine".
"We are much more worried about European gas prices than we are about oil prices", the Stifel team said, as circa 20% of global LNG production sits behind the Strait of Hormuz, with Europe only halfway through its seasonal gas storage refill.
"If LNG production from Qatar and the UAE was disrupted, we see a repeat of 2022: European gas prices rising so LNG flows to Europe and not Asian consumers to ensure storage is filled," which could mean European gas prices returning to 2.5 to 5x current prices.
"In a UK context, that would mean a UK Energy price cap of £3000-4500/year, which would be economically and politically disastrous, in our view."
Stifel highlighted significant gas producers among its coverage as Harbour Energy PLC (LSE:HBR), circa 40% European gas and Serica Energy PLC (AIM:SQZ), circa 55% gas.