Why Middle East gas field attacks could send energy prices soaring

Tina Soliman Hunter For The Conversation

Sydney: Israel’s bombing of Iran’s South Pars gas field has sent shockwaves through global energy markets.

The South Pars gas field is part of the world’s largest gas field, known as North Dome, shared by Iran and Qatar.

Until now, nations on both sides of the conflict have confined their attacks to civilian infrastructure, where the damage is unlikely to affect critical services.

But Israel’s attack on South Pars, and Iran’s retaliatory strike on Qatari gas infrastructure, represents a major escalation in the Middle East conflict.

So why is energy infrastructure being targeted? And how might this affect global energy prices? Remind me, who’s attacking who?

Israel has been vocal about its campaign to destroy critical infrastructure, such as electricity and water services, as a way to cripple Iran, both economically and militarily.

Earlier this week, Israeli forces bombed the South Pars gas field, a crucial part of Iran’s domestic energy sector. South Pars accounts for about 70 per cent of the country’s total gas production and 90 per cent of its domestic energy use. It’s also a key processing site for Iranian gas exports, which mainly go to Turkey and Iraq.

The bombing of the South Pars gas field is the first time either side of the US-Iran conflict has attacked energy infrastructure used to produce fossil fuels.

Within hours of the South Pars attack, Iran launched a retaliatory missile strike on Qatar’s Ras Laffan Industrial City. Ras Laffan is the world’s largest liquefied natural gas facility, producing about 20 per cent of global supplies. Qatar primarily exports reserves from Ras Laffan to China and Europe.

According to QatarEnergy, the country’s state-owned petroleum company, the damage from Iran’s strike has reduced its processing capacity by about 17 per cent and will potentially cut its revenue by $20 billion. It will likely take between three and five years for the site to become fully operational again.

In the days since, Israeli Prime Minister Benjamin Netanyahu has apparently agreed not to attack any more Iranian energy infrastructure, at the request of US President Donald Trump. In a social media post, the president suggested he did not know Israel was planning to target Iranian gas infrastructure.

How will these attacks affect global energy markets?

On a regional level, the South Pars and Ras Laffan attacks have escalated already heightened tensions in the Gulf region. And it’s likely to trigger further retaliatory strikes on key energy infrastructure.

Of particular concern is Saudi Arabia’s 1,200-kilometre Yanbu oil pipeline and Abu Dhabi’s Habshan–Fujairah pipeline. Both pipelines bypass the Strait of Hormuz, allowing countries to keep exporting oil even when this crucial shipping route is closed or disrupted. But as regional tensions rise, it is unlikely the Strait of Hormuz will be opened any time soon.

From a global perspective, the impacts of the South Pars and Ras Laffan strikes are serious and far-reaching.

Since the start of the Russia-Ukraine war in 2022, Europe has increasingly sought to reduce its dependence on Russian gas after relying on Russian supplies for more than 25 years. As a result, Europe has turned to Qatar as its main source of liquified natural gas. So, for an already energy insecure Europe, Iran’s attack on Qatar’s Ras Laffan facility is calamitous.

The prolonged closure of the Strait of Hormuz is affecting economies around the world. The closure has already cut an estimated 20 per cent of global oil supplies, and this is reflected in surging oil prices. At the time of publication, the price of brent crude oil has surpassed US$106 a barrel.

This 20 per cent drop in global oil supplies, coupled now with the 17 per ecnt loss of Qatari liquified natural gas exports, is driving this surge in oil prices. But perceived oil and gas shortages are also contributing. And the threat of further attacks on energy infrastructure will only reinforce this perception.

These strikes will not only impact fuel prices. The International Monetary Fund has already warned if oil prices remain elevated for more than a year, this will boost global inflation and slow economic growth. This would also raise the price of crucial commodities such as food and fertiliser.

What does this mean for Australian fuel prices?

When it comes to gas, the recent strikes on Middle East energy infrastructure may have little effect on Australia. This is because we produce the vast majority of the gas we consume.

However, oil is a different story. Here in Australia, we import almost all our oil. So surging oil prices, exacerbated by Israel and Iran’s latest attacks, will likely increase the cost of almost every commodity.

Australian farmers are already bearing the brunt of fertiliser shortages, with many struggling to sow or harvest their crops. And many people, in Australia and around the world, are facing higher fuel, food, energy, and transport costs.

This raises the broader, but no less urgent, question of whether Australia has enough liquid fuel to survive such crises. Over the past decade, refinery closures, poor oil production and the transfer of our strategic oil reserve to the US have weakened our liquid fuel security.

We currently have enough liquid fuel, which includes petrol, diesel, and aviation fuel, to last just over a month. This may be adequate in peacetime. But that’s unlikely to be the case in times of disruption or, as we are now experiencing, war.

The author is Professor of Energy and Natural Resources Law, Macquarie University