The stability of Australian energy markets is under increasing threat as escalating conflict in the Middle East disrupts critical global supply chains.
Commonwealth Bank commodities strategist Vivek Dhar warns that the geopolitical crisis is creating an "unprecedented" strain on oil and gas flows, with the potential to drive Brent crude prices well beyond current expectations.
Central to the concern is the Strait of Hormuz, a primary maritime choke point through which approximately 19% of global oil and 20% of liquefied natural gas trade must pass.
While some alternatives exist, Dhar estimates that only a mere 3% to 5% of global oil can effectively bypass the area, leaving a staggering 14% to 16% of the world's supply vulnerable to total disruption.
As Brent futures flirted with US$120 a barrel early this week—levels reminiscent of the initial shocks following the invasion of Ukraine—analysts suggest the market is significantly underestimating the longevity of the crisis.
If physical shortfalls eventually force "demand destruction," prices could surge into a volatile range of US$120 to US$150 a barrel.
The current situation is particularly precarious due to a distinct lack of global spare capacity, meaning any prolonged sidelined supply cannot be easily replaced.
Dhar noted that the share of supply currently at risk is nearly double that of any previous historical event.