The Middle East conflict is having a global impact on energy prices as oil shipping and production is impacted along with Qatar LNG exports also being impacted. We track the impact on Australian electricity prices.
Overview
The Middle East conflict that began on February 28, 2026, has resulted in widespread fluctuations in energy prices, impacting not just oil but also electricity and natural gas prices in Australia.
Key Indicators
- NSW Q2-26 Base Swap Price: This price currently serves as a key indicator for Australian electricity prices. The movements tracked daily since the outbreak of the Middle East conflict reflect significant volatility.
- Daily Movements:
- NSW Q2-26 Prices: The report tracks the lowest and highest traded prices, along with the settled price amidst fluctuating market conditions.
- Brent Crude Price: Expressed in USD per barrel, the maximum daily prices are tracked against NSW Q2-26 electricity prices.
- Japan Korea Marker (JKM): Measured in USD per MMBtu, the price movements correlate strongly with Brent crude prices and NSW Q2-26 electricity prices.
Correlations Observed
- The trends in the NSW Q2-26 base swap prices show a well-defined correlation with Brent crude prices. As crude prices rise, electricity prices also tend to increase.
- Daily fluctuations in JKM also reflect this trend, suggesting that natural gas prices are influenced by the same geopolitical factors.
Broader Market Impact
- Long-term Outlook: The impacts of the conflict have been felt across additional quarters and calendar years through to 2029. Prices for energy commodities have increased, indicating the market's belief in the prolonged effects of the conflict.
- Perception Effect: As with most commodity markets, short-term impacts usually impact longer term prices even though the short-term event may be short-lived. The longer-term market price uplift reflects the contingency that these shorter-term events could be repeated, and in part it also reflects it is humans and the perceptions held by humans, that are impacted by shorter-term events. After all, prior to the Middle East outbreak the market was depressed, and prices were falling. Now the global energy upward price forces have turned, and has changed the perception of future prices.
Conclusion
The ongoing conflict in the Middle East is influencing a broad range of energy prices in Australia. The observed correlations demonstrate that geopolitical events have a robust impact on energy commodities, shaping market expectations for both the short- and long-term future.
The chart below shows the prices NSW Q2-26 prices lowest and highest traded, along with the settled price. On the same y-axis is the maximum daily Brent Crude price expressed in USD/barrel and on the second y-axis is the maximum daily JKM price measured in USD/MMBtu.
The trends are quite well correlated.
Looking at the other quarters and calendar years, the impact has been widespread and all prices through to 2029 have increased.
Appendix: Chronology of Events
Here is a recap of events:
- 28 February:
- Opening Strikes: The US and Israel launch coordinated missile and air strikes against Iranian government, military, and nuclear targets.
- Leadership Killed: Iranian Supreme Leader Ali Khamenei is killed during the initial attacks.
- Immediate Impact: LNG tanker crossings through the Strait of Hormuz cease immediately.
- 1 March:
- Iranian Retaliation: Iran responds with massive missile and drone strikes targeting Israel and US military bases across the GCC region, including Qatar, Saudi Arabia, and Kuwait.
- OPEC+ Reaction: OPEC+ decides to raise oil output in an attempt to stabilise markets.
- US Casualties: The US confirms military casualties during "Operation Epic Fury".
- 2 March:
- Strait of Hormuz Closure: Iran officially announces the closure of the Strait of Hormuz, effectively halting Gulf oil and LNG exports.
- Qatar Production Halt: QatarEnergy halts all LNG production at major facilities like Ras Laffan and Mesaieed following drone strikes.
- Energy Prices Spike: Brent crude surges over 8%, briefly exceeding $82/bbl; European natural gas futures jump up to 50%.
- Infrastructure Attacks: Saudi Aramco's Ras Tanura refinery is struck by drones.
- 3–4 March:
- Force Majeure: Qatar formally declares force majeure on LNG shipments, removing roughly 20% of the global LNG supply.
- Shipping Gridlock: Over 150 ships are stranded at anchor outside the Strait of Hormuz as maritime transit drops toward zero.
- NATO Involvement: NATO intercepts an Iranian missile near Turkey.
- 5–7 March:
- Regional Economic Strain: Gulf nations, including Saudi Arabia and Qatar, begin reviewing US contracts and citing force majeure due to disrupted shipments.
- Supply Crisis: Qatar's Energy Minister warns that global GDP growth will be severely impacted if exports remain halted for more than a few weeks.
- Insurance Surge: Shipping insurance costs become "prohibitive," with many insurers withdrawing war-risk coverage in Gulf waters.
- 8–10 March:
- Price Peaks: Brent crude surpasses $100 per barrel for the first time in four years, peaking as high as $126.
- Iranian Succession: Mojtaba Khamenei is named the new Supreme Leader of Iran, signaling continued hardline policies.
- Global Response: The G7 announces it will not yet tap oil reserves, though the IEA begins preparing for an emergency release.
- 11 March:
- Emergency Reserves: IEA member countries agree to the largest-ever release of emergency oil stocks.
Impacts on Energy Shipping
- Strait of Hormuz: Transit through this vital chokepoint (carrying 20% of global oil and LNG) has dropped by 85–100% since the conflict began.
- Qatar LNG Exports: All Qatari exports are halted; since 80% of this goes to Asia, major importers like China and India are facing immediate energy shocks.
Alternative Routes: The Cape of Good Hope route is being used as a primary alternative, adding 10–14 days to transit times and significantly increasing freight costs.
Disclaimer and Notes
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