Hormuz and Bab el-Mandeb raise the heat in energy markets

Energy markets entered a new week amid escalating geopolitical tensions in the Middle East, with oil prices jumping by around 3% as developments in the Strait of Hormuz reignited fears of disruptions to oil and gas supplies, while investors focused on the crisis’s impact on Gulf economies and financial markets. Brent crude rose by $3.14, or 3%, to $107.75 per barrel, while West Texas Intermediate (WTI) crude climbed by $3.01, or 3.01%, to $103.06 per barrel, continuing a rally that pushed prices to gains of nearly 8% over the past week, surpassing the $100 mark for the first time since July.

Concerns intensified after the UK Maritime Trade Operations authority announced that a vessel in the Strait of Hormuz was hit by a shell, causing a fire and forcing the evacuation of its crew—a development underscoring the vulnerability of one of the world’s most critical maritime chokepoints to any military escalation. Risks extend beyond oil, as natural gas prices in Europe surged to their highest levels since December 2022, with Amsterdam futures rising more than 5% to around €83.7 per megawatt-hour. European gas stocks stood at approximately 68% of storage capacity, compared to a five-year seasonal average of 84%.

In this context, Shell believes the market can offset a significant portion of the shortfall in liquefied natural gas (LNG) supplies once the Strait of Hormuz is reopened, noting that roughly 20 million tons of lost Middle Eastern gas supplies could primarily be replaced by shipments from North America.

The Gulf between oil and stock markets

These developments are directly reflected in Gulf markets, which are now navigating a more complex landscape balancing higher oil revenues against rising geopolitical risk premiums. While elevated crude prices boost oil revenues for regional countries, they simultaneously increase transportation, energy, and insurance costs, and heighten inflation concerns if navigation disruptions persist.

In Kuwait, the stock market demonstrated a clear ability to absorb some of these pressures, closing Monday’s trading session with broad gains across major indices. The General Index rose by 18.07 points, or 0.20%, to 8,962.24 points, amid active trading volume of 463.1 million shares across 32,516 transactions, valued at 121.8 million Kuwaiti dinars.

Washington promotes “energy abundance”

In an effort to manage the fallout from the energy crisis, the United States is hosting Group of Twenty (G20) meetings in Houston, Texas, with a focus on the concept of “energy abundance” and expanding access to affordable, reliable, and secure supplies. The meetings come at a highly sensitive time, with oil and gas prices rising and mounting pressure on US and European fuel markets, while Europe faces the challenge of rebuilding its stockpiles before winter.

European gas prices rose by more than 5%, with stocks reaching 68% of capacity against a seasonal average of 84%.