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Impact of the Middle East conflict

Middle East Conflict and its impact on the wholesale energy market

On the 7th of October 2023, long-standing tensions escalated as Hamas carried out surprise attacks across various parts of Israel. First and foremost, the war has brought about devastating loss and suffering on both sides, with innocent civilians caught in the crossfire. A humanitarian crisis has begun as critical infrastructures have been destroyed with people struggling to access clean water, medical supplies, fuel, and electricity. On a secondary level to this, the disruptions to energy supplies have raised wider concerns about global energy security. With increasing pressures on gas prices, Jay Luka from our Energy Management team, takes a look at what the effect the conflict has had on the wholesale energy market and the potential impact if a wider conflict ensues.

Production disruption

Following the first attacks in early October, Chevron, the operator of the Tamar gas field, located off the coast of Israel, stated that they were instructed by the Israeli energy minister to shut down gas production at the Tamar platform, amid safety concerns with production eventually returning on the 13th of November.

The impact of the return has been minimal as bullish sentiment about the wider situation remains. The platform, which meets 70% of Israel's energy needs is located approximately 25 kilometres off Israel's southern Mediterranean coast and can be seen from the northern Gaza Strip, within missile striking distance.

Leviathan and Karish, the two other fields remain in operation which are further north in the Mediterranean Sea.

Last year saw a new record for Israeli gas production, and according to S&P Global Commodity Insights, production was made up of the following:

  • Leviathan 11.4BCM (Billion cubic meters)
  • Tamar 10.2 BCM
  • Karish 0.3BCM

(source: S&P Global Commodity Insights)

Israeli domestic consumption increased to 12.7BCM with exports to Egypt and Jordan also increasing by 29% to 9.2BCM. In the first half of this year, Israeli gas production totalled 12.3BCM with Leviathan producing 5.44BCM, Tamar 4.91BCM and Karish 1.97BCM.

An image illustrating the gas fields off the coast of Israel.

Impact on gas and power prices

Gas prices were on a decline with front month closing at 89.87p/th on 5th October. Since then, prices have trended upwards, peaking at 136.70p/th on 13th October. Fundamentals were bearish with strong supply, storage, and milder temperatures.

However, since the 9th of October there has been added volatility in the market which is outweighing these. The upward trajectory could be mainly sentiment based, as fundamentals remain largely unchanged.

Uncertainties such as the conflict becoming wider, with involvement of other countries in the region and the situation worsening have contributed to the bullish sentiment in the market. Power prices have tracked the same sentiment as gas prices, with upward trajectory since 5th October as we can see below.

Several graphs illustrating the changes in UK Gas and Power Prices since the 7th October 2023.

The EMG (East Mediterranean Gas Pipeline)

The offshore EMG pipeline running parallel to the Gaza Strip which carries Israeli gas from Ashkelon to El-Arish in Egypt has been suspended, with exports being rerouted via the FAJR pipeline in Jordan following the shutdown of the Tamar platform in October.

The pipeline is of high importance for Egypt to meet both local domestic and export demand. Egypt has two LNG export facilities, Idku and Damietta, each relying on the flows via the EMG pipeline which is used in the liquefaction process to export LNG.

Egypt have only exported one cargo in August 2023 and none in September 2023. Increased domestic demand has limited exports along with the need for gas in power generation as temperatures remain high and generation from renewable sources are down year-on-year.

An image showing the pipelines connecting Egypt and Israel.

Source: Ratio Energies

Impact on the Oil Market

While Israel and Egypt's role in global oil supply is limited, the unrest in the Middle East is still impacting oil markets , with the greatest risk being the conflict widening in the region, in particular to Iran, a major oil exporter. The United States, a long-standing ally of Israel, could take a tough stance if Iran became involved which could ultimately result in a reduction of oil exports.

There is uncertainty in the oil market now with impacts of the ongoing situation in the Middle East continuing to cause turbulence in the prices.

The containment of the conflict has however eroded war risk premium that was added at the start of the conflict. In addition, and as part of the OPEC+ (Organisation of the Petroleum Exporting Countries) efforts to maintain oil prices in the region of $80 per barrel, Saudi Arabia and Russia have confirmed their intentions to continue voluntary cuts until the end of the year, this would see a combined 1.3 million barrels per day being reduced.

Recently, oil prices have re-traced slightly, with risk premium that was added at beginning of the conflict eroding. Yet, the risk of the situation widening, and involvement of neighbouring countries remains.

Implications of a widening conflict

As the unrest in the Middle East has been ongoing for over eight weeks with tensions rising, there is a fear this will escalate, and the conflict widen, potentially to Iran. As mentioned, the United States could tighten sanctions on Iran's oil exportations.

Iran is a major oil exporter and a member of OPEC, who produce 3.17 million barrels per day and any restrictions could see shortages of supplies in the oil market which has already seen less production due to voluntary OPEC+ cuts from Saudi Arabia and Russia.

The Strait of Hormuz is a key shipping route for tankers which lies between Oman and Iran, with approximately 20% of the volume of the world's oil consumption passing through daily. 

Any embargo or sanctions posed on Iran by the United States could see the shipments via the Strait of Hormuz being disrupted which Iran have threatened to do on previous occasions but have never gone ahead with.


The wholesale market has been turbulent over the last eight weeks with volatile prices seen in the first few weeks following the attacks despite strong supply fundamentals. 

Geopolitical risk was outweighing the market fundamentals and more recently the war risk premium which was priced into the market has eroded as the strong supply fundamentals takeover.

The outlook is still uncertain, and any news from the Middle East could see the market react and this would be reflected in the prices as we have seen in the last month.