Following the outbreak of the US-Iran war this year, global energy prices have experienced sharp fluctuations. Unlike previous conflicts, this war involves a much broader scope, has lasted longer than market expectations, and its impact on global energy supply far exceeds that of earlier wars. Over the past two months, Brent crude and SC crude oil have posted cumulative maximum gains of 57% and 114%, respectively, while Dutch TTF and Asian JKM natural gas prices have surged 100% and 87%, respectively. German electricity prices have climbed 60%, and European ARA coal prices have risen 27%.

Supply buffer capacity continues to weaken, raising price elasticity

The US-Iran conflict has directly constrained global energy supply through two critical shipping lanes: the Strait of Hormuz and the Bab el-Mandeb Strait. Historically, Iran has repeatedly threatened to close the Strait of Hormuz but never actually followed through. Prior to the war, 25% of global oil trade and 20% of global natural gas trade passed through the Strait of Hormuz, with most destined for Asian countries. The closure of this strait clearly poses a significant threat to global energy supply. Amid the disruption, Saudi Arabia activated an alternative pipeline to the Red Sea, exporting crude via the Yanbu terminal and the Bab el-Mandeb Strait, which became a vital substitute export route during the closure. However, after July, Yemen's Houthi forces imposed control over the Red Sea, blocking this alternative export channel. In mid-September, Saudi Arabia's east-west pipeline was also attacked and forced to shut down. As the US-Iran situation escalates, Gulf states now face comprehensive restrictions on oil exports, with only covert shipping and ship-to-ship transfer methods maintaining a limited flow. August volumes reached just one-third of pre-war levels, with September potentially even lower.

Compared to the early stages of the war in March and April, crude supply losses have not diminished, yet we now face much lower oil inventories. After months of supply contraction and continuous inventory drawdowns, oil product stockpiles across multiple global regions have fallen to historic lows. US strategic reserves have dropped to 280 million barrels, the lowest level in nearly four decades. Chinese port inventories have retreated to at least a 10-year low, while crude and refined product stocks in Europe and Singapore are also at historic lows. This indicates that the buffer capacity on the supply side has weakened, significantly increasing price sensitivity and elasticity.

Non-US natural gas supply faces tougher test this winter

Natural gas has performed equally prominently in global primary energy. The European benchmark TTF has surged 60% over the past month. Beyond the export disruptions caused by the Strait of Hormuz closure, Qatar's Ras Laffan Industrial City, home to the world's largest LNG production facility, was attacked in the early stages of the war. This assault nearly halted all Qatari LNG exports. Partial repairs will take several months, while full restoration could require 3-5 years. Previously, Qatar accounted for 20% of global LNG trade, with 80% flowing to Asian nations. China sourced 24% of its LNG imports from Qatar, while Europe relied on Qatar for 10% of its LNG imports. Qatar's supply disruption has intensified competition for natural gas resources in non-US markets.

From a primary energy consumption perspective, Asia remains dominated by coal and oil, while natural gas is Europe's second-largest energy source after oil, especially crucial for residential heating during winter. However, due to the supply shortage following the US-Iran war, the EU's gas storage level currently stands at only 68%, 17% below the five-year average. Germany and the Netherlands sit at just 54% and 50%, respectively. Under EU requirements, storage must reach 90% before winter arrives at the end of November, with a relaxed threshold of 80% under exceptional circumstances. Given the current injection pace, meeting this target appears extremely challenging, signaling a severe test for Europe's natural gas supply during the peak heating season.

War triggers a reshaping of the global energy supply landscape

Behind the sharp energy price increases lies a deeper issue: the restructuring of the global energy supply framework. The Russia-Ukraine war brought about Europe's reduced dependence on Russian gas and increased reliance on US supplies. Before that conflict, nearly 50% of Europe's natural gas imports came from Russia; now that figure stands at only 10%, with complete cessation of Russian gas imports targeted by the end of 2027. Meanwhile, the share of US LNG in Europe's imports has surged from 7% before the Russia-Ukraine war to more than 50% now. Similarly, in this US-Iran war, America has ramped up exports of crude oil, refined products, and natural gas as Middle Eastern supply remains constrained. Over the past few months, peak US crude exports have risen over 50% compared to the start of the year, while LNG exports to both Asia and Europe have exceeded historical seasonal levels. The beneficiaries of these dynamics are clear.

The fundamental purpose of war is resource control

Looking deeper, a nation's decision to wage war is fundamentally about controlling resources. Recall the Venezuelan conflict earlier this year. Venezuela holds the world's largest oil reserves, and after the US took control, the country's heavy crude began flowing en masse to America. Previously, due to Western sanctions, most Venezuelan oil went to China, serving as a key raw material for asphalt production. But following US control, Venezuelan crude supplies to China were essentially cut off — a primary reason behind the strengthened valuation of asphalt this year. In the current US-Iran war, Washington's strikes on Iran aim not only to eliminate the nuclear threat but also to maintain the petrodollar system by controlling oil flows. Currently, the share of non-dollar settlement in global oil trade is gradually rising, while the dollar's proportion in global foreign exchange reserves continues to decline, signaling a clear erosion of the petrodollar framework. Therefore, striking Iran holds significant strategic importance for controlling Iranian oil resources and preserving petrodollar stability.

Global energy market faces a longer "high-price cycle"

Returning to the present, the trajectory of US-Iran relations remains the core market focus. We believe that under persistent deadlock, global energy supply losses and supply-demand imbalances cannot be resolved. Combined with depleted inventories at historical lows and the approaching winter heating season in the Northern Hemisphere — the peak period for energy consumption — the global energy supply will face even more severe challenges. In the future, global energy prices will maintain high sensitivity. This applies not only to oil and natural gas; due to substitution effects among energy sources, elevated oil and gas prices will also drive up coal, electricity, and other energy costs. The global energy market is set to enter a "high-price cycle" longer than previously anticipated.