The Iran energy nightmare is becoming a reality

March 5, 2026 — 3:35pm

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Energy analysts modelling a war involving Iran have long feared two developments: the Islamic Republic lashing out at its oil-rich neighbours and a blockade of the Strait of Hormuz, through which a third of global seaborne crude and a fifth of liquefied natural gas (LNG) transit daily.

Until February 28, both eventualities seemed remote because Iran had too much to lose. It would risk pushing Gulf states towards America, its sworn enemy; angering China, the main buyer of its oil; and inviting strikes on its own petroleum infrastructure.

After America and Israel struck at the heart of the mullahs’ regime on February 28, killing its supreme leader, what remains of the regime is desperate. And both aspects of the nightmare scenario are unfolding at once.

Iranian missiles have hit Saudi Arabia’s largest refinery, a gas-liquefaction complex in Qatar, another refinery in Kuwait and the Fujairah oil industry zone in the United Arab Emirates (UAE), a major transit and bunkering hub. The first two are offline, as are gas fields in Israel and Kurdistan. On March 3, the American embassy in Saudi Arabia warned of an imminent Iranian attack on Dhahran, the kingdom’s giant oil complex.

At the same time, traffic through the Strait of Hormuz has largely stopped after drone strikes on several vessels and insurers suspended coverage for many others. On March 2, the Islamic Revolutionary Guard Corps, the regime’s praetorian guard, declared the strait closed, warning that any ship attempting passage would be set ablaze. Energy prices are already catching fire. Brent crude, the global benchmark, has jumped by 14 per cent since February 27th, to $US83 ($117) a barrel. In Europe, a megawatt-hour (MWh) of natural gas costs €54 ($88), over 70 per cent more than it did last week. Prices in Asia have shot up, too.

Dire straits: The oil industry is facing its worst nightmare

Stephen BartholomeuszSenior business columnist

Senior business columnist

On March 3, Donald Trump sought to cool things down, saying that America would provide insurance and guarantees for shipping lines, and that, if necessary, the navy would escort oil tankers in the Gulf, though the details of the plan remain unclear. The announcement comes as traders have become much more pessimistic about the disruptions to energy supply.

The American-Israeli campaign began on a weekend when markets were closed. When they reopened in the Asian morning on March 2nd, the initial reaction was contained. Brent finished the day at $US78, just $US5 above its pre-war close. European gas spiked but closed at €44 per MWh, well below the peak of over €310 in 2022, shortly after Russian President Vladimir Putin invaded Ukraine. Most traders expected disruptions to last days, not weeks.

They are now rapidly revising that view.........

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