"It Will Be Hard to Turn On the Boiler This Winter"... The Boomerang of the US-Iran War [Weekend Money]

Hopes for Early End to War Fade Before U.S. Midterm Elections
Qatar Gas Exports Plunge Amid Hormuz Blockade
Europe’s Storage Rate at Historic Low of 60%... Euro Under Pressure

As military conflicts in the Middle East become prolonged, not only international oil prices but also natural gas prices are soaring rapidly. As a result, with the trade balance worsening in the eurozone, there is analysis suggesting that the euro may enter a pronounced weakening trend in the second half of the year.

According to KB Securities, as the Iran war intensifies and international oil prices continue to rise, the prices of natural gas in Europe and Asia have also been increasing since last month. In particular, at the beginning of this year, part of Qatar's energy production facilities was damaged, and as the blockade of the Strait of Hormuz has been prolonged, Qatar's LNG exports have plunged by more than 90%. If this situation persists through the winter, European and Asian countries may be forced to compete with each other to secure gas supplies.

Currently, Europe's storage rate stands at 60% this month, marking a historic low for this time of year. This is mainly due to heavy inventory depletion following last year's winter cold snap, and the pace of replenishment remains extremely sluggish as the European Union is also proceeding with the phased withdrawal from Russian LNG.

KB Securities pointed out that the current energy crisis will have a differentiated impact on the value of major currencies. In contrast to some Asian countries that are posting trade surpluses thanks to strong exports of AI semiconductors, the EU—unable to benefit from the artificial intelligence (AI) value chain—has only seen energy import costs such as electricity and gas soar. As a result, the region recorded a trade deficit of 16.3 billion dollars by July this year, with the deficit widening further.

In particular, the wholesale electricity price in Europe is strongly tied to gas prices and is 80–100% higher than that of the United States. This has sparked concerns that the recession experienced in 2022—when Germany, a core manufacturing country, suffered seven consecutive quarters of negative growth due to high electricity costs during the natural gas crisis—could recur.

KB Securities emphasized that, since the Trump Administration is preparing for an end to the war only after the U.S. midterm elections in November, there is a need to brace for high oil and gas prices to persist into the fourth quarter as well.

Jaeyoung Oh, a researcher at KB Securities, stated, "While currency markets have recently seen marked strength in the Korean won and a reversal in the Japanese yen, accumulating increases in energy prices will place a significant burden on the euro area—which is a net energy importer and is seeing a worsening trade deficit." He added, "If mutual hostilities between the U.S. and Iran intensify and high oil prices are sustained into the fourth quarter, the euro/dollar rate could fall below 1.16 dollars, further pressuring the euro to weaken and driving relative dollar strength."

This content was produced with the assistance of AI translation services.