Escalation of Iran War Risks May Exceed Potential Policy Response to Prices
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Energy Policy Perspectives Vol. 16 - March 20, 2026
Attacks in the Middle East continue to escalate, raising the near and intermediate-term stakes of the Iran war. On Wednesday, Israel hit the key South Pars natural gas field while Iran retaliated with an attack on the Qatari Jas Laffar LNG plant that provides roughly 20% of global LNG deliveries, causing extensive damage and driving a spike in European natural gas prices. Brent crude oil prices briefly spiked intra-day on Thursday to over $119/bbl. U.S. energy prices rose more modestly with WTI crude briefly threatening $100/bbl before retreating. President Trump suggested Wednesday evening that further Iranian strikes on Qatari energy infrastructure would bring a U.S. military response that would “massively blow up the entirety of the South Pars gas field.”
More moves on the policy side. As highlighted in our prior EPP note on March 12, policy responses have been insufficient to offset the supply losses. This week, the Trump administration announced a 60-day waiver of the Jones Act shipping law, temporarily allowing foreign vessels to move fuel between U.S. ports, while also issuing a general license authorizing certain transactions involving Venezuela's oil company PDVSA. The Jones Act waiver addresses a domestic logistics bottleneck, not a supply shortage, as it marginally improves fuel distribution efficiency along the coasts but adds no new barrels. On March 13, President Trump also modified existing Executive Orders (EOs) to give the Secretary of Energy the broad authority to act to address energy supply issues under the Defense Production Act. Energy Secretary Wright immediately ordered the reinstatement of California offshore oil production that has been shuttered by court order. The legality of the move remains disputed by California and would have a de minimis effect on global and U.S. crude oil supplies. The PDVSA license is similarly constrained, as Venezuela’s production capacity has deteriorated over the past several years. In our view, the gap between what U.S. policy can deliver and what the market requires remains wide.
Unclear effects of supply disruption. Even if shipping through the Strait of Hormuz is resolved over the near-term due to a negotiated end of the war or through military escorts of vessels through Hormuz, we believe that shut-in Middle East crude oil and natural gas production and infrastructure damaged by the war could have more lasting effects on intermediate-term global energy supplies and prices. We do not expect crude oil or natural gas prices to immediately return to pre-war levels even upon the conclusion of hostilities.
U.S. E&P sector may add some incremental capacity. With the sector’s breakevens well below current WTI levels, every incremental dollar of upside to oil prices flows almost entirely to the bottom line. Accordingly, given capital return frameworks, we expect increased buyback activity on the FCF windfall. That said, we would not be surprised by some operators adding incremental activity with 1Q26 results, as well as increased hedging activity. More importantly, with the Strait of Hormuz disruptions, infrastructure damage deepening, and both sides publicly rejecting negotiations, the supply disruption is structural. While domestic natural gas prices have remained in check (12-month Henry Hub strip at $3.87/Mcf), the global backdrop has tightened materially. The European natural gas price benchmark (Dutch TTF) has nearly doubled since February 27 on the attacks and disruptions on LNG infrastructure. This widening dislocation between domestic and international prices should disproportionately benefit the gas-weighted E&Ps with direct LNG exposure.
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