The Qatari pause removes a huge chunk of global gas supply - up to one fifth of the LNG market. Somewhat ironically, beneficiaries of the gas price spike may include US LNG exporters - although contracts are typically on long-term fixed prices. While oil can be strategically stockpiled for long periods (as China has been doing in preparation for this scenario), gas storage is more seasonal. The timing at the end of the winter means that European gas inventories are around their lowest point of the year, exacerbating the sense of risk. Normally these inventories would be rebuilt over April-September. Absent geopolitics, the market was looking increasingly well supplied. But now that restocking will likely be considerably more expensive. 

For energy markets, the critical question now is how long Hormuz will remain impassable. That in turn depends on how quickly the US and Israel eliminate Iran’s military, missile and drone capabilities. The US will be particularly keen to see maritime traffic resume as quickly as possible, to avoid a prolonged disruption to energy markets. Trump may not be known for consistency, but he has always wanted to keep oil prices down, to minimise inflation and interest rates. He is already overtly trying to talk oil prices back down. 

Yet another fire is lit under European energy security  

The most secure energy is: 

• The energy you never even use (efficiency) 

• Produced domestically, as close to demand as possible 

• Harnessed from local resources rather than relying on continuous fuel imports 

• Produced by decentralised, diffuse infrastructure rather than concentrated facilities

Europe’s painful energy security lesson of 2021-22 is being taught once again. Back then it was Russian pipeline gas, now it is Qatari LNG. If Hormuz remains effectively closed for any material length of time, Europe is once again in big trouble. That very much includes the UK, which remains highly dependent on gas imports. The spike may only be very temporary, but it would be surprising to see no Hormuz risk premium remain post-conflict. Higher gas prices flow through into higher power prices, especially in markets that has a high share of gas-fired power generation. This will further reinforce and accelerate the drive for reducing energy import vulnerability via electrification and buildout of local renewable generation and storage infrastructure. 

In fairness, since 2021 European countries have been investing to reduce dependency on oil and gas imports. However, the job is nowhere near done - there is still a very long way to go. EU and UK gas imports have swung towards much greater reliance on US LNG as well as pipeline supplies from Norway. EU countries still import LNG from Russia, 4 years after the invasion of Ukraine. 

Before this latest war, European leaders already showed a rapidly sharpening urgency about the need for faster transition as a key energy security strategy. They understand this US administration will follow its own perceived best interests, regardless of its European friends. The conflict further underlines that urgency. 

As we write, the conflict is affecting sentiment and hitting the valutions of many European clean energy manufacturers, developers and utilities. However, the implications of this war are in fact very bullish for their longer-term prospects: they will be the backbone of future energy security in Europe. Share price weakness may in some cases create some opportunities to build long-term strategic holdings. 

What next for Iran?

Iran is one of the world’s oldest and proudest civilisations, but this regime has long been on the ropes - with rampant inflation and an economy hollowed out among other things by years of sanctions. Its priority throughout has always simply been survival, amid fast-eroding domestic legitimacy. The brutal end to the recent uprising showed what lengths it will go to survive.

Now it is being decapitated from the sky, there are two most plausable succession scenarios. The first is that the Islamic Republic stumbles on in some curtailed, humiliated form, similar to how Hizbullah has operated after the assassination of Hassan Nasrallah and other top figures. The other is that a senior military figure or group steps into the power vacuum - perhaps an elite group of Revolutionary Guards. That would also be more continuity than rupture - as the regime has long been a religious overlay on a repressive military-commercial complex. Either way, Khamenei’s successors will be severely weakened and forced to comply with US and Israeli power, perhaps not dissimilar to the role Delcy Rodriguez has been obliged to play in Venezuela. 

This may well happen within the next week or two. The big caveat is how long it really takes for Iran’s full military capabilities to be neutralised - hence they are going at it very hard. Before long the logic of diminishing returns will set in and Trump will have had enough. 

Entirely different outcomes or timelines are of course possible. But what is also clear is that there isn’t an alternative faction closing in on power in the same way as there was in Syria in late 2024. We may yet be proven wrong, but it is hard at least at this stage to see how disparate groups of protestors or a popular youth-led uprising could meaningfully organise and assume power. It is equally hard to see how a US-backed figure like Reza Pahlavi could return and take over - something Trump is himself publicly expressing doubts about - or for that matter how Iran could seamlessly evolve towards a Western-style liberal democracy (even though its president is elected in the current system). The other obvious big risk is that as a multi-ethnic state, a peripheral part or parts of the country fall into regional ethnic or separatist conflicts, which would have wider implications across the region - but this is another whole analysis.