War has always been, continues to be, and will perpetually continue to be the preeminent cause of devastation across all strata of society. Therefore, countries cannot attain their aspirations of progress, development, and prosperity without peace. From this vantage point, it can be argued that the prolonged fighting in Gaza might have more significant local, national, and international effects. Taking into account the potential regional and international repercussions, the ongoing conflict will primarily impact the worldwide oil and natural gas markets. Despite experiencing moderate price increases from the conflict’s inception to the present, energy commodities will ultimately incur greater expenses for production and transportation, resulting in elevated global inflation rates. If the situation in the region continues to worsen, ports and border crossings could be forced to close, causing a disruption in global trade.
I. The Situation of the World Energy Markets
The ongoing conflict in Gaza and the clashes with Hezbollah in the north have cast doubt on the future of regional and global energy markets, as well as on the stability of oil prices. In the initial week of the conflict, global oil futures experienced a marginal increase of 4 percent. However, should the hostilities extend to encompass additional countries, the repercussions could be far more severe, as they could cause significant disruptions in critical supply chains and ultimately escalate worldwide energy costs.
According to the November report published by the US Energy Information Administration (EIA), projections suggest that worldwide liquid fuel production will increase by one million barrels per day to 4.3 million barrels per day by 2024. Production growth from non-OPEC countries will be offset by continued OPEC Plus production cuts, which will help maintain a relatively balanced global oil market in 2020. Even though the Gaza War has not yet had an impact on actual oil supplies, the unpredictability of the conflict and other factors pertaining to the world’s oil supply could drive up the price of crude oil in the months to come. Forecasts suggest that in the fourth quarter of 2023, the average price of a barrel of Brent crude will be $90; in the same quarter the following year, it will average $93 per barrel.
Regarding the global natural gas markets, European natural gas futures contracts increased by 14 percent in the first week of the conflict. Even though natural gas prices only slightly increased, no new significant agreements were signed because of the “wait-and-see” attitude in the global energy market. This could also be primarily attributable to the continued availability of vast quantities of gas on the international market. European countries successfully mitigated their reliance on Russian gas imports through the exploration of alternative liquefied gas sources, including Egypt, Qatar, the United States, and others. Furthermore, they successfully refilled their natural gas reserves in their entirety.
II. The Gaza War and the Middle Eastern Energy Market
1. The Energy Market in Egypt: Egypt is currently the most substantial gas market in the region, as evidenced by its approximately 61 billion cubic meters of domestic demand for natural gas. Egypt is frequently subject to swings between surplus and deficit at different times due to the fluctuation of local production and reserves. Parallel to this, there were swings in Egypt’s natural gas exports.
Egypt possesses two natural gas liquefaction plants, one of which is operated by Shell and has an annual capacity of 7.2 million tons in Idku; the other, owned and operated by Eni, has a production capacity of 5 million tons in Damietta. Egypt’s total production in 2022 reached 7.2 million tons, with 70 percent of these exports going to Europe and Turkey. This, according to a report published in October by the European Commission, increased Egypt’s supply of liquefied natural gas to the European Union from 1.1 billion cubic meters in 2021 to 4.2 billion cubic meters in 2022.
Egypt’s natural gas exports were expected to remain unchanged in 2023, but high temperatures contributed to an increase in domestic consumption of natural gas. During the first half of 2023, the amount of natural gas exported decreased to meet local demand. As a result, predictions suggest that Egypt’s natural gas exports will fall in 2023 to levels below those of 2022. With the start of the Gaza war, the Israeli Ministry of Energy announced that it would temporarily halt gas production in the Tamar field, Israel’s second-largest gas field, even though exports to Egypt were later resumed. Chevron, the field’s operator, subsequently declared its intention to compensate for the gas shortage originating from the Tamar field and directed to Egypt through alternative fields. However, as more and more areas of conflict grow, the war’s continuation could worsen already difficult conditions.
2. Other Middle Eastern Markets: Israel shut down the Israeli oil terminal in Ashkelon, and the conflict with Hezbollah will make the already dire energy situation in Lebanon worse. The Lebanese government is having trouble acquiring shipments of petroleum products to fuel its four coastal power plants. In the midst of a severe energy shortage, private oil importers in Lebanon have increased their diesel imports, primarily to power private power generators. In the event that Hezbollah and Israel escalate hostilities, the caretaker government in Lebanon will not be able to manage fresh crises. The conflict’s enlargement may have an impact on the flow of cargo to Lebanon, putting further strain on the country’s already fragile economy.
Even though Jordan only imports 37 percent of its natural gas from Israel—a negligible amount when compared to what Israel exports to Egypt—the country will be severely impacted if the Gaza conflict worsens. The low quality of natural gas produced locally and the country’s propensity to import costly liquefied natural gas will hurt the Jordanian government and its people, depleting foreign exchange reserves at a time when Oman is already grappling with serious economic issues.
To put it succinctly, the future of the Middle Eastern and international energy markets will remain uncertain as long as the Gaza conflict persists. The exacerbation of the situation will inevitably result in heightened instability within the energy markets of the region. Furthermore, it could inflict significant harm upon the infrastructure of the energy sector and have economic ramifications that will manifest in the condition of the oil and gas industry in the area. For years to come, regional governments may also shelve any plans they had previously developed for energy sector expansion projects.
