Markets stay on edge as Middle East disruptions tighten supply

In the March 2026 edition of the EEMM, we noted that bearish market sentiment, driven mainly by mild weather and weaker fuel and carbon prices, was abruptly reversed by the US attack on Iran at the end of February. Although March began with relatively mild weather, too, the conflict in the Middle East continued to shape sentiment as disruptions to oil and LNG transit tightened the actual balances and the outlook. Gas, power, and other fuel prices remained highly sensitive as markets shifted from pricing geopolitical risk to pricing sustained physical disruption and a more difficult refill of European gas storage, pushing energy markets into a more acute phase of volatility.

Starting with gas, spot prices recorded their largest monthly increase since 2022, rising by around 21 EUR/MWh. From QatarEnergy declaring force majeure in early March to Iran later knocking out 17% of Ras Laffan’s LNG capacity, developments sharply increased uncertainty around future gas fundamentals. No LNG cargo has transited the Strait of Hormuz since 27 February, implying a loss of around 130 cargoes after five weeks, while Qatar’s export capacity is likely to remain constrained for 3 to 5 years and the North Field East expansion delayed by at least another year. This marks a clear break from the February view of a well-supplied global gas market in 2026 and 2027. Asian buyers have felt the impact sooner than Europe, while EU inventories stood just below 28% on 1 April, their lowest level since 2022, making the EU’s 80% refill target increasingly challenging.

Similarly, oil prices recorded one of the sharpest rallies on record, with Brent crude rising by roughly 60% during the month, its largest monthly increase in decades. Disruptions were widespread, with at least one major refinery hit by drone attacks, more than 3 mb/d of refining capacity shut, and 21 attacks on commercial vessels in the Hormuz region bringing tanker traffic close to a standstill. Despite transit volumes recovering to more than 25 vessels per day by late March, Saudi Arabia increasing flows through its East-West pipeline, and the IEA announcing the release of a record 400 million barrels from its strategic reserve, oil prices look likely to remain elevated as markets continue to trade on headlines into April.

Coal prices also continued to rise, even though almost no coal is shipped through the Strait of Hormuz, as saving gas requires coal-fired power plants to take up the slack. European utilities stepped up intake from the ports of Amsterdam, Rotterdam and Antwerp, driving inventories down to a multi-year low of just 2.3 Mt. Carbon markets, by contrast, sent a more mixed signal, with EUAs recovering from earlier weakness but remaining constrained by heightened policy uncertainty and ongoing competitiveness debates. What became clear, however, is that the European Commission rejected calls to suspend the EU Emissions Trading System (ETS), even temporarily, and proposed only a limited emergency measure, namely cancelling the invalidation of excess certificates in the Market Stability Reserve (MSR). More structural adjustments, such as the introduction of an ETS Investment Booster, are expected to come from the EU ETS/MSR Review this summer.

All of the aforementioned bullish developments passed through to the power sector, lifting spot power prices. In some countries, the impact of higher gas prices was partly mitigated by limited gas-to-coal switching, alongside the usual seasonal increase in solar generation. On the nuclear front, French performance remained very strong, while Switzerland’s Gösgen reactor restarted in late March after a 10-month outage. However, in early April Belgium entered a couple of months without nuclear generation due to maintenance works, keeping Europe’s demand for thermal power robust.

Looking ahead, market uncertainty is set to continue as the conflict in the Middle East develops. Its implications for LNG availability, oil flows, Europe’s gas storage refill trajectory and the willingness of European politicians to intervene in energy markets will doubtless be decisive, heightening market sensitivity to news headlines and stoking further volatility in the weeks to come.

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