Oil and natural gas prices spiked on March 18 after reports of the first attacks on Iranian production facilities in the war, including the world's largest natural gas field. The incidents underscore the escalation of a conflict that has so far largely spared Iran's energy infrastructure.
Brent crude oil jumped 5% to nearly $109 a barrel. WTI, the U.S. benchmark, rose 2.5% to $98 a barrel. European natural gas prices for April delivery jumped more than 7% at one point.
The semi-official Iranian news agencies Fars and Tasnim reported that some key facilities belonging to the country's oil and gas industry, including refineries, had been hit by US-Israeli strikes, with emergency services working to contain the fires.
Tasnim reported damage at South Pars, the world's largest natural gas field, and Asalueh, which has oil and petrochemical facilities. South Pars is being compared to Qatar, which has already shut down the world's largest liquefied natural gas plant.
Earlier in the war, Israel attacked a fuel depot in Tehran, and on Friday the US attacked military infrastructure on Iran's Kharg Island. Wednesday's strikes, however, mark the first attacks on production facilities.
The latest attacks will heighten fears of a more protracted war. “Energy markets should continue to brace for a prolonged disruption to oil and gas flows through the Strait of Hormuz, with little sign of de-escalation or resumption of oil and LNG flows through the key point,“ said Warren Patterson, head of commodities strategy at ING.
Brent crude settled at $103.42 on Tuesday, its highest since the war began, as Iran stepped up attacks on energy infrastructure in the Gulf. Crude oil prices have risen about 40% since the United States and Israel attacked Iran on February 28.
Iraq to ship oil via Turkey
The move in oil prices showed that traders were not particularly reassured by news that Iraq had reached a deal to resume small crude oil exports via Turkey, bypassing the blocked Strait of Hormuz.
Crude oil exports from Iraq's Kirkuk oilfields will resume on Wednesday from the Turkish port of Ceyhan after the Kurdistan Regional Government, which controls part of northern Iraq, agreed to allow oil to flow through the Kurdistan-Ceyhan pipeline.
The federal government of Iraq and the Kurdistan Regional Government “also agreed to take the necessary security measures to protect oil fields and ensure the continuity of oil exports," the Kurdistan Regional Government said in a statement.
The Kirkuk pipeline exports will run at a rate of 250,000 barrels per day, which is just “a drop in the ocean“, according to Neil Wilson, a strategist at trading platform Saxo, quoted by CNN. But the resumption of these flows is still “another positive headline compared to the smoldering war,“ he said in a note.
By comparison, Iraq was producing about 4.5 million barrels of oil per day before the war, according to the U.S. Energy Information Administration. The near-total closure of the Strait of Hormuz means that about 20 million barrels of crude oil and petroleum products, about a fifth of the world's oil supply, are being cut off from the global market every day.
Separately, an Iranian security source told CNN that Tehran is in talks with eight countries outside the Middle East to provide safe passage through the Strait of Hormuz for tankers carrying oil traded in Chinese yuan. Oil is largely traded in dollars, but one exception is Russian oil, which is traded in rubles or yuan.