European gas posts fifth straight weekly gain as Middle East war cuts LNG supply

European wholesale natural gas prices surged to their highest levels since late 2022 this week, driven by the ongoing closure of the Strait of Hormuz and compounded by Ukraine's deepest-ever drone strike on Russian Arctic gas infrastructure, as the continent faces a winter supply crunch with storage levels far below seasonal norms.

The benchmark Dutch TTF front-month contract rose above €82 per megawatt-hour on Thursday, while the equivalent UK NBP contract briefly touched 207 pence per therm — levels not seen since December 2022. On Friday, TTF eased slightly to around €77.60 as traders locked in profits, but the contract remained on track for a roughly 12% weekly gain and its fifth consecutive week of advances.investing+2

A Chokepoint Sealed

The rally is anchored in the closure of the Strait of Hormuz, which Iran shut to vessel traffic on August 12 amid its escalating conflict with the United States. The waterway handles roughly 20% of global LNG flows, primarily from Qatar. Bloomberg reported Friday that the war has cut off about a fifth of global LNG supplies, with European buyers forced into fierce bidding wars against Asian importers for alternative cargoes.bloomberg+3

The security picture worsened further this week after Iran-aligned Houthi forces seized control of the Yemeni port of Mocha, extending maritime risks into the Red Sea and threatening the Bab al-Mandeb strait — the other critical chokepoint linking the Middle East to Europe. Brent crude surged above $105 a barrel on Thursday, its highest since May.investing+2

Storage Gap Raises Winter Alarm

European underground gas storage stood at approximately 67% of capacity as of September 8, far below the five-year seasonal average of 84%. Replenishment through August and early September was hampered by summer heatwaves, Norwegian pipeline maintenance, and a backwardated forward curve that made near-term injections unprofitable.barchart+1

Adding to supply anxiety, Ukraine on Wednesday launched its deepest-ever strike into Russian territory, hitting two gas condensate facilities in the Yamalo-Nenets region — an area that hosts about 80% of Russia's natural gas production, according to Al Jazeera. The Ukrainian Armed Forces said it used FP-1 long-range drones to strike plants in the Novy Urengoy and Purovsky districts, more than 3,000 kilometers from the Ukrainian border.aljazeera

ECB Responds as Inflation Bites

The sustained energy price surge prompted the European Central Bank to raise its benchmark deposit facility rate by 25 basis points to 2.50% on Thursday — its second hike of the year — citing acute cost-push inflation from rising energy costs. Euro area inflation rose to 3.3% in August, up from 2.9% in July, with energy prices climbing 14.3% year-on-year. ECB president Christine Lagarde warned that inflation risks remain tilted to the upside and growth risks to the downside.euobserver+2

The energy shock has rippled through sovereign debt markets on both sides of the Atlantic. A US 30-year Treasury auction on Thursday cleared at 5.308% — the highest yield at auction since 2001 — while UK 30-year gilt yields approached 6%, threatening to wipe out the Chancellor's fiscal headroom ahead of next month's budget.home+1