European benchmark natural gas prices jumped by 5% in early morning trade on Monday, as the re-escalation of hostilities between the United States and Iran intensified concerns about LNG supply from the Middle East.

The benchmark price at the Dutch Title Transfer Facility (TTF) — the continent's main pricing hub and the reference for most European gas trading — soared by 5% in morning trade in Amsterdam, topping 70 euros, or $81.20, per megawatt-hour (MWh), after the U.S. and Iran resumed trading strikes for the first time in more than a month. That marked the highest level for front-month benchmark futures in more than three and a half years, dating back to January 2023, when prices were still descending from the record highs of Europe's energy crisis that followed Russia's invasion of Ukraine.

Oil prices also surged, rising 3.6% in morning trading in Europe, amid heightened market concerns that the renewed escalation could unwind much of the rebound in oil volumes estimated to have left the Persian Gulf via the Strait of Hormuz in recent weeks.

The renewed hostilities, combined with the Strait of Hormuz remaining blocked to LNG traffic, are tightening global gas markets, where Asia and Europe are competing for a shrinking pool of supply to fill storage ahead of the coming winter. Roughly a fifth of the world's LNG supply normally transits the Strait of Hormuz, making it one of the most critical chokepoints for seaborne gas trade.

Europe is heading into winter with one of the lowest levels of gas in storage in the past two decades. The war in the Middle East has crippled LNG supply from Qatar — one of the world's largest LNG exporters — sent gas and LNG prices in Europe and Asia skyrocketing, and intensified competition for readily available global LNG cargoes that do not need to cross geopolitically charged chokepoints. Higher prices in Asia can pull flexible cargoes away from Europe, adding another source of upward pressure on TTF.

Two developments in particular are pushing Europe's gas prices higher at the start of the week: the return of hostilities on Monday, and last week's announcement from Qatar that it is extending the force majeure on its LNG deliveries to customers by one month, through October. Force majeure is a contractual clause allowing suppliers to suspend deliveries due to events beyond their control, and its extension signals the disruption is expected to persist into the heating season.

LNG traffic at the Strait of Hormuz remains at a standstill, even though oil flows are estimated to have rebounded in recent weeks. Unlike crude oil, LNG cannot be shuttle-shipped through Hormuz and then reloaded via a ship-to-ship (STS) transfer — a workaround that Persian Gulf producers, including Qatar, have used in recent months to continue shipping oil to customers.

By Michael Kern for Oilprice.com