Following the Iran-Israel conflict, oil and gas prices have retreated, yet the restoration of supply and key shipping lanes will require time. Concurrently, a global restocking demand persists. It is anticipated that oil and gas prices will maintain a high-volatility pattern for a period after the conflict de-escalates. The recommended investment focuses include: (1) upstream oil and gas exploration and production companies that benefit from high oil prices; (2) companies with cost-advantaged non-oil process routes, such as leaders in light hydrocarbon processing and coal-to-chemicals; and (3) sectors like polyester and leading integrated refining and chemical enterprises, where pressure on both cost and demand sides is easing, potentially leading to an improved operating environment.
The key analysis is outlined as follows: Prior to the conflict, both hydrocarbon exports from the Gulf Cooperation Council (GCC) six nations and imports by Asian countries were heavily reliant on the Strait of Hormuz. Specifically, 62% of the GCC's crude oil exports, accounting for 31.5% of global crude exports, transited the strait. For LNG, exports from Qatar and the UAE via Hormuz constituted 19% of global LNG trade. In East and Southeast Asia, the proportion of crude oil imports via Hormuz relative to apparent demand was notably high, with figures reaching 62% for South Korea and Singapore, 77% for Japan, 81% for the Philippines, 90% for Myanmar, and 32% for China. For natural gas, 28% of India's, 27% of Taiwan's, 21% of Vietnam's, and 20% of South Korea's apparent demand was met by LNG imports transiting the Strait of Hormuz.
During the conflict, the global oil and gas market experienced chain reactions and logistics restructuring. Crude oil production and exports from the GCC six nations both declined by over 40%, with alternative routes proving limited. A portion of the reduced exports shifted to unknown destinations, while exports to Egypt increased in share. Qatar's LNG exports plummeted by 92.6%, with only minor shipments to regional partner Kuwait. Japan's crude imports were most severely impacted; its highly concentrated import structure from Saudi Arabia and the UAE led to a 72.5% month-on-month decline in April imports compared to February. Japan, South Korea, and Taiwan turned to the United States for crude oil. China's alternative import supplies primarily came from Russia and Brazil, purchasing significant volumes of temporarily sanctions-exempted Russian oil due to high feedstock flexibility. India's crude imports fell by only 13% month-on-month. Southeast Asian nations, with smaller import volumes, prioritized regional mutual supply, and accessed closer alternative sources, also experienced relatively minor import declines, mainly shifting to Africa and South America. While Europe's LNG imports were not directly highly dependent on the Strait of Hormuz, seasonal factors and diversion of U.S. cargoes led to the largest decline in LNG imports, down 28.8% in April from February. Asian regions also competed for LNG from countries like Australia, which reduced exports to Japan and South Korea, directing more volumes to China, Taiwan, and Southeast Asia. LNG imports for Taiwan, Southeast Asia, and India were temporarily unaffected, with India sourcing more from Oman.
Post-conflict, the gradual recovery of the global oil and gas market is underway. The restoration of hydrocarbon production and Strait of Hormuz shipping will take time, supporting oil and gas prices. The repair timeline for Qatar's gas facilities is extended, suggesting global natural gas price stickiness may be higher than for crude oil. Europe and Asia will continue competing for gas supplies, primarily from the United States. Under the logic of energy security, import source diversification is underway, and the logistics system is unlikely to fully revert to its pre-conflict state. In the medium to long term, reducing global reliance on the Strait of Hormuz is a clear trend, and the global energy market will face defined strategic and commercial restocking demand. Furthermore, pressures from cost and negative demand feedback are expected to ease, leading to an improvement in the operating environment for midstream and downstream refining and chemicals.
Risks include changes in macroeconomic policies, significant fluctuations in crude oil prices, force majeure events, shifts in geopolitical situations, and demand falling short of expectations.
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