European gas markets are no longer repricing risk. They are pricing disruption.

Since yesterday morning, TTF has moved violently higher. After trading around EUR 39/MWh early yesterday, the market spiked to EUR 49/MWh in the afternoon, a EUR 10/MWh move in just a few hours. That first leg higher followed reports of halted Qatari LNG production, precisely the operational vulnerability we highlighted yesterday: limited storage buffers, and Ras Laffan as an exposed target.

Later in the evening, prices retraced to around EUR 43/MWh. The second leg was even more aggressive. Overnight, TTF surged from ish EUR 43/MWh to nearly EUR 60/MWh as we write. The trigger was explicit rhetoric from an advisor to the Iranian Revolutionary Guard stating that the Strait of Hormuz is closed and that vessels attempting to transit would be targeted.

That materially shifts the probability distribution. This is no longer about shipping hesitation. This is about declared closure risk. It was some pullbacks this morning linked to reports that Chinese gas buyers are pressuring Tehran to keep the Strait open. That is logical: Asia is the primary destination for Gulf LNG. But Iran has now signaled intent. At this stage, it looks like only meaningful de-escalation from Washington would materially cap upside momentum in oil and gas.

Physical vulnerability is real. Yesterday we highlighted three core vulnerabilities:

#1 20% of global LNG trade transits Hormuz.

#2 Qatar exports ish 9-10 Bcf/d through a corridor with virtually no bypass capacity.

#3 Qatari liquefaction operates with only 1-2 days of storage buffer.

The third point ref. Qatari LNG is now central. Liquefaction trains run continuously. If vessel loading stops due to distruptions or physcial attack on infrastcutre, storage fills rapidly. Once tanks approach capacity, output must be reduced. Restarting trains is not instantaneous. i.e., maritime disruption becomes upstream supply loss as we speak.

Unlike some of the oil, LNG cannot be rerouted through pipelines in the Persian Gulf. Also, the global LNG system is narrower, more concentrated and structurally less flexible. There are no strategic LNG reserves of scale. Removing, or even temporarily freezing, ish 20% of global trade creates immediate tightening across both basins.

Europe is indirectly exposed: while 80%+ of Hormuz LNG volumes are Asia-bound, Europe is not insulated. Roughly 8-10% of European LNG imports are indirectly linked to Gulf supply. More importantly, if Asia loses Qatari volumes, it bids aggressively for US cargoes. That tightens the Atlantic basin and lifts TTF.

The backdrop is not comfortable. European storage sits around 30%, well below the ten-year seasonal average of 44%. March weather remains slightly bearish (NW Europe ~2°C above normal), which provides short-term demand relief, but weather cannot offset sustained loss of large LNG volumes.

Going forward, duration is everything. Our base case yesterday assumed 4-5 days of meaningful disruption followed by a messy partial restart. That assumption now looks optimistic if rhetoric translates into sustained closure.

Iran does have strong economic incentives to avoid prolonged closure; its own crude exports depend on the strait. But if Tehran perceives the situation as existential, economic self-interest may become secondary. That is the key swing factor.

This is ultimately an endurance game. The question is not whether the strait can be fully sealed, but how long meaningful disruption can be sustained.

At current levels, the market appears to be pricing roughly a 1-2-week disruption, effectively a fleet productivity shock (shipping delays, insurance hikes, restart lag) rather than structural long-term supply loss. If Qatari output resumes relatively quickly, TTF likely consolidates in the EUR 40-50/MWh range.

If disruption extends to one month, roughly 7 million tonnes of LNG will be removed from the market. Europe could effectively lose around 5.5 million tonnes per month through displacement effects. In that case, inventories fall more sharply and TTF moves decisively into EUR 60+/MWh territory.

A multi-month Ras Laffan outage is a different regime entirely. At that point, the system risks a 2022-style squeeze, where EUR 100/MWh and above cannot be excluded and demand destruction becomes the primary balancing mechanism.

Yesterday we framed EUR 90-100/MWh as a tail scenario. With TTF already printing near EUR 60/MWh, the gap between “tail” and “plausible stress case” is narrowing, but sustained supply loss over 1-2 weeks is still required for that scenario to materialize.

Iran has made clear that energy flows are part of its retaliation strategy. The key variable from here is endurance. Even partial choking of flows, combined with persistent strike risk, is sufficient to keep prices elevated. A prolonged period of instability would pressure global energy prices and, indirectly, US gasoline prices, a politically sensitive variable heading into US midterm elections.

i.e., unless a diplomatic off-ramp emerges, duration of disruption is now the central driver.

In short: availability of LNG exports from the Persian Gulf, and the restart timeline at Ras Laffan, are the two dominant swing factors from here. Volatility will remain elevated. The system is too concentrated and too inflexible to absorb prolonged disruption without further repricing.

Oil is Iran’s Weapon of Choice and the US gasoline pump is part of the battlefield. Iran’s Revolutionary Guard Corps last evening declared the Strait of Hormuz for closed and that the military will set any ship on fire if it tries to pass the Strait. Iran is also escalating its retaliatory strikes across the region. Yesterday it was mostly unclear what retaliatory path Iran would take. Would oil, oil installations and the Strait of Hormuz be part of it or left alone. Now we know. Oil is Iran’s weapon of choice and it is aimed straight at President Trump’s Midterm elections. An important part of the battlefield for Iran is thus at the U.S. gasoline pump. US midterm election voters.

Brent is now unavoidably heading to $100/b and above unless Trump finds some kind of offramp, or in other words backs down. So far however, his response seems to be to double down. Extending the expected 4-5 weeks to instead ”whatever it takes”. He is digging in. And while he is doing that, the US retail gasoline prices shoots higher.

Has Trump now may destroyed the rest of his precedency? All due to hubris after Venezuela and the war against Iran last summer. This war looks like it is going totally off-track in a way he hadn’t expected. And not at all in the direction he had hoped. The U.S. Congress will this week vote on whether the President needs approval by the Congress to go to war or not. A two thirds majority vote is needed to override a veto from Trump. U.S. congressmen will have to show explicitly if they stand by Trump’s wobbly war or not.

Fully closed or partially choked? What matters is endurance. Iran may not be able to keep the Strait of Hormuz fully closed. That is at least the general assumption. But constant risk of strikes and thus choking and reduced flow will do plenty good to spike the oil price higher. It is endurance that matters. I.e. number of days with reduced flow times the number of days Iran keeps it going. And real retaliation and revenge over Trump is to keep it going all to November. All to US midterm elections. Unless Trump backs down and finds an offramp.

Brent up 8.5% to $79/b while TTF nat gas is up 42% to €42/MWh.

The negotiations was the bluff. So war it was. It looks like the negotiations was the real bluff. Maybe US/Israel were sincere in the sense that if Iran had accepted all the terms set by the US/Israel, then they wouldn’t have attacked. But it probably wasn’t a chance in that Iran would ever have accepted their demands. Hubris p

Brent trading with ”Symmetric risk and with an embedded silver lining scenario”. SEB’s Namik phrased the pricing of oil today as seen from the eyes of a trader: ”Symmetric risk with an embedded silver lining scenario”. I.e. the risk that war will engulf the Middle East is not really in the price. Such risk could easily add another $10-20/b to the price. Market today probably pricing a limited period of contained war and lost supply. Take profits if you were long already but don’t put on fresh longs if you were neutral. Well put and maybe the correct way to see it.  

The silver lining scenario is what Trump and the market experienced last summer. It is natural that the market is embedding such a silver lining scenario in the current price. Because that is what we all experienced last summer with 12 days of war which culminated with Iran shooting some funny-rockets (pre-announced) at US military bases. That was it. Essentially Iranian capitulation. Last year.

Day after day after day for 35 days. (Trump now says 4-5 weeks of war) Imagine that what we are seeing of Middle East violence today with US war planes being shut down, rockets flying, Qatar closing all of its production of LNG, Saudi Arabia closing its biggest refinery Ras Tanura, no ships moving in or out of the Strait of Hormuz, ships being shot at over the weekend. Imagine that this happens for 35 days. Day after day after day. And that on certain days it seems like broad contagion will engulf the Middle East. That will be a long string of very, very uncomfortable days.

It all boils down to how Iran choses to play this. Defiant, enduring revenge or capitulation. How this evolves will of course boil down to what Iran choses to do. How will they play it? And how we see the situation will change from one minute to the next depending on political signals of intentions coming from the Iranian regime. Fighting back with defiance and revenge or capitulating?

An enduring quagmire seems like a smart Iranian strategy. But who can say. What sticks to my mind is the article by Nate Swanson in Foreign Affairs which I also referred to on Friday: ’Why Iran Will Escalate, U.S. Military Strikes and the Risk of a Quagmire’.  It makes so much sense. Iran needs to inflict pain on its opponents to deter them from doing this again and again in the future. If they can turn this into a political disaster for Donald Trump, a quagmire of a war he cannot get himself out of, extended and enduring. Then that is payback. Preferably with elevated oil and gasoline prices as well to hurt Trump via his gasoline buying voters. Only one in four Americans supports this war. Very low versus normal 50-60% at the start of a new, well argued US war. So enduring and extending and bogging Trump down in a quagmire of hostilities in the Middle East may be the strategy of choice for Iran. Iran cannot fight back with equal military force, but it may be able to keep it going.

Closing the Strait of Hormuz? The assessment is in general that Iran do not have the capacity to do so. But a few rockets here and there will probably easily reduce the number of ships and amount of oil being shipped out through the Strait. And keeping that going over time could prove more powerful than just a short term spike to $100/b. A full closure for 25 days is 20 mb/d x 25 days = 500 mb. Choking it to a decline of 10% is 20 mb/d x 10% x 250 days = 500 mb reduction. Same result. If so we would likely have Brent around $80/b rest of year. A wider contagion and a deeper crisis would drive it higher.