(Investing) – European wholesale natural gas prices surged on Friday, touching their highest levels in nearly four months as intensifying military exchanges between Washington and Iran stoked fears over a potential closure of the Strait of Hormuz, threatening a critical chokepoint for global liquefied natural gas (LNG) flows.
The front-month Dutch TTF gas contract, the European benchmark, climbed to 55.65 euros per megawatt-hour in afternoon trade. Concurrently, the British equivalent front-month wholesale gas contract jumped to 134.26 pence per therm.
The primary catalyst for the market rally remains the six-day military standoff between U.S. forces and Iran.
Following recent U.S. air strikes on coastal defense targets and missile sites, Tehran warned of catastrophic disruptions to regional energy corridors. The rhetorical escalation crystallized into physical supply danger after reports emerged that major Middle Eastern exporters, including Qatar, began temporarily halting or altering LNG vessel movements near the Strait of Hormuz due to heightened maritime threats.
Because roughly a fifth of the world’s LNG transits this narrow passage, utility buyers in Europe are facing the realistic prospect of a sudden drop in global supply.
The threat of a Hormuz closure comes at a particularly vulnerable juncture for the European continent. While European storage inventories are currently tracking along seasonal averages, the region is highly dependent on continuous, flexible sea-borne LNG cargoes to displace missing Russian pipeline volumes.
A prolonged blockade or shipping halt in the Persian Gulf would structurally break the global spot market, triggering a fierce and costly bidding war between European utilities and energy-starved buyers in Northeast Asia.
Aggravating the geopolitical premium is a shifting technical landscape in regional power markets. A recent bout of low wind speeds across Northwestern Europe, alongside unseasonably high mid-summer temperatures, has already elevated gas-fired power generation demand, limiting the amount of fuel that can be injected into underground storage cushions.
