Rise in tensions, soaring prices: Iran's retaliation to Israel's attack jolts energy market

European gas prices surged 28 per cent and oil gained 6 per cent on Thursday after Iran attacked energy infrastructure in West Asia in retaliation against ⁠Israeli attacks on it gas facilities, marking the biggest escalation of the nearly three-week war.

The Iranian aerial attacks caused extensive damage to the world's largest gas plant in Qatar, targeted a refinery in ⁠Saudi Arabia, forced the United Arab Emirates to shut gas facilities and started fires at two Kuwaiti refineries.

The price of benchmark Brent crude ‌rose to above $114 a barrel on Thursday after earlier reaching $119, while ​gas prices in Europe were double the level seen in late February before the U.S. and Israel launched their war on Iran.

Benchmark Dutch gas prices hit 74 euros ($84.97) per megawatt hour, their highest level since January 2023.

"This latest escalation feels like a turning point for markets because the conflict is no longer just about military headlines or Strait of Hormuz closure," said Charu Chanana, chief investment strategist at Saxo in Singapore.

"It is now hitting the plumbing of the global energy system. What is unsettling markets now is the growing stagflation risk," she added.

European leaders seek quick fixes

European ​leaders on Thursday will try to agree on quick fixes ⁠to mitigate surging prices caused by the tit-for-tat attacks on key facilities and the closure of the Strait of Hormuz, through which some 20 per cent of global oil and liquefied natural gas supplies normally pass.

But some governments doubt that the EU - whose 27 member states have vastly different energy mixes and national taxes on energy - can realistically offset a price spike.

The attacks on South Pars in Iran and Qatar's Ras Laffan plant represent a sharp escalation, not just in the conflict itself but in its implications for ⁠energy markets, Rob McLeod, head of ‌energy price risk solutions at Hartree Partners, said in a LinkedIn post.

Major infrastructure damage means facilities could take months or years, not weeks, to restart, he said.

South Pars is the Iranian sector of the world's largest natural gas deposit, which Iran shares with Qatar, a close ‌U.S. ally, across the Gulf. Qatar's foreign ministry rebuked Israel for a "dangerous and irresponsible" attack on Iran's South Pars facilities, and denounced Iran for what it called "a flagrant breach" of international law, expelling two senior Iranian diplomats. On Thursday, a drone fell ⁠on the Aramco-Exxon refinery, SAMREF, the Saudi Arabian Defence Ministry said, adding damage was being assessed. It also intercepted a ballistic missile launched towards Yanbu, the Red Sea port city that is currently Saudi Arabia's only outlet for crude exports and where the refinery ‌is located.

Oil loadings were briefly halted at Yanbu, two sources told Reuters on Thursday.

Also on Thursday, one of the operational units at Kuwait Petroleum Corporation's ‌Mina al-Ahmadi and Mina Abdullah refineries was targeted by drones, resulting in fires at both sites, Kuwait's state news agency said.

'Extensive damage' seen at Ras Laffan

Qatar's state oil company QatarEnergy, the world's second-largest LNG exporter, said on Wednesday that Iranian missile attacks on Ras Laffan, the site of its core LNG processing operations, caused "extensive ‌damage", while the UAE shut gas facilities after intercepting missiles early on Thursday.

QatarEnergy said in a statement that its emergency response team was deployed immediately to contain fires caused by the attack. By early Thursday, all fires at Ras Laffan had been brought under control, with no injuries reported, Qatar's Interior Ministry said.

Saul Kavonic, head of research at Australia's MST Marquee, said attacks on Ras Laffan "could cause a lasting global gas shortage, ⁠but this won't pressure the ⁠Trump administration because the U.S. benefits economically from high global gas prices". Qatar produces 77 million metric tons of LNG annually, which is used in power generation and industries. The Laffan refinery primarily processes condensate into refined products including aviation fuel.

Ras Laffan, located 80 km (50 miles) north of Doha, is an energy-industry hub and hosts several international companies including Shell, the world's biggest LNG trader.

Shell is currently assessing any potential impact, a spokesperson said. The Iranian attacks came hours after Tehran issued evacuation warnings for several oil facilities across Saudi Arabia, the UAE and Qatar, following strikes on its own energy infrastructure in South Pars and Asaluyeh.

U.S. President Donald Trump earlier warned Iran in a statement on social media not to retaliate by attacking Qatari LNG facilities again and threatened to "massively blow up the entirety of the South Pars Gas Field" if it did so. He said Israel had attacked South Pars without informing Qatar ​or the United States.

Gas facilities shut down in UAE

In the UAE, authorities said they were responding to incidents at the Habshan gas facilities and at the Bab oil ​field caused by falling debris from intercepted missiles.

The gas facilities were shut ​down and no injuries were reported, the Abu Dhabi Media Office said.

The Habshan complex, operated by Abu Dhabi state oil giant ADNOC, is one of the world's largest gas processing facilities, comprising five plants with a total capacity of ​6.1 billion standard cubic feet per day, according to ADNOC.