There is nowhere else on the planet with quite as concentrated a supply of quite so much energy as the Arabian Gulf.
This is the great paradox that has both haunted and supported this region for decades; it is part of the reason why so many nations around the world remain so interested in what’s happening there – and it is the main reason why war in the Gulf is so threatening for global growth.
It is tempting, given this is 2026 and not 1976, to assume oil prices simply don’t matter anymore. And it’s certainly true that the direct contribution of oil to global gross domestic product is significantly lower today than it was 50 years ago. However, disruption to the hydrocarbon supply coming from the Gulf still has outsize importance today, for two reasons.
Markets latest: Key developments as war grips Middle East
The first is that we’re not just talking about oil. We’re talking about fertilisers (derived from natural gas). We’re talking about plastics (from the many petrochemicals produced from gas and oil). We’re talking about the composite materials used to make the fuselages in the latest passenger jets and Formula One cars. All begin as oil and gas pumped out from under the ground. And there is no greater store of those hydrocarbons anywhere else on the planet than here.
That is point number one. Point number two is that the majority of those hydrocarbons have to exit the Gulf through a single, narrow maritime corridor known as the Strait of Hormuz. And since this strait is bordered on the north by Iran, that raises significant questions about how easily we can procure these essential ingredients for human civilisation in future.
Point number three is that there’s also a big question mark about whether we’ll be able to get it out of the ground in the first place. The single most market-moving event today was the news that Qatar was shutting down the Ras Laffan facility. Few have heard of Ras Laffan, or the North Field, the gas reservoir it’s plugged into. But Ras Laffan is the biggest gas terminal on the planet and the North Field is the biggest gas field. In fact, it’s more than that. It’s the single biggest source of energy anywhere – bigger than any oil field or any uranium mine.
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All of which helps explain why gas prices shot up by 50% upon the news. Right now most of Qatar’s gas goes to Asia but in the coming years many countries, including the UK, were expecting to lean more and more heavily on Qatar for liquefied natural gas. Now, though, there is a massive question mark over that supply – over when Ras Laffan will begin to pump it again, not to mention when liquefied natural gas tankers will be able to pass safely through the Hormuz straits.
Now, quite what this all means for the UK economy is still unclear. If gas prices drop back again quickly, the impact on bills will be minimal. Wholesale prices are still, notwithstanding today’s jump, way below where they were in 2022. However, the longer this goes on, the bigger the impact on Europe and the UK. Having barely recovered from the energy price shock of recent years, there is a not insubstantial chance we get embroiled in another one all over again.
In short, we should all be watching the events in the Gulf with real concern.
