Global Tensions Spike LNG Prices as Strait of Hormuz Traffic Collapses

Tanker traffic through the critical Strait of Hormuz has collapsed to a two-month low, reigniting fears of global energy supply shortages amid peak summer demand, according to OilPrice.com. The escalation follows the collapse of a ceasefire and a return of hostilities more than a week ago, with Iran's Islamic Revolutionary Guard Corps Navy announcing late last week it had intercepted four ships attempting to pass through the strait.

Vessel operators are growing increasingly wary, with most attempting transits in "dark mode" with transponders switched off to avoid detection. An empty Malta-flagged, Greece-managed oil products tanker, the Kavomaleas, was reported at anchor off Oman early on Monday, July 20, according to data compiled by Bloomberg. Tanker operators have all but stopped attempts to transit the Strait since the hostilities returned.

The disruption is having a more acute impact on liquefied natural gas (LNG) markets than on oil, according to analysts at ING. In a note cited by OilPrice.com, analysts Warren Patterson and Ewa Manthey wrote that LNG flows lagged the recovery after the June ceasefire and warned that a "slow LNG ramp-up" following any new resolution would leave the market exposed as the heating season approaches. Data from tanker-tracking firms suggested LNG exports via the Strait of Hormuz had ground to a halt over the three days leading up to July 20.

The supply risk is already translating into higher prices. Asian spot LNG prices surged to March highs, with the Japan-Korea Marker benchmark adding 25% over the last four weeks and gaining 10% in the week to July 16 alone, according to Anadolu Ajansi. On July 16, spot LNG prices in Asia hit $20.2 per million British thermal units, traders told Bloomberg.

Meanwhile, the growth of U.S. LNG is "exceeding all expectations," according to Daniel Yergin, Vice Chairman of S&P Global, as reported by Rigzone. This profound U.S. growth comes as global tensions underscore the strategic value of reliable, non-Middle Eastern energy supplies. For Bakken operators, the price spikes in global LNG markets and the ongoing volatility underscore the interconnected nature of energy commodities, where geopolitical risk in one region can bolster the economic case for stable North American production.

The United Kingdom Maritime Trade Operations (UKMTO) reported an incident involving a vessel on fire 8 nautical miles northwest of Kumzar, Oman, on Monday, advising all ships to transit with caution.