Iran War Threatens Record Annual Drop in Global LNG Supply, IEA Says
The ongoing conflict in Iran is causing significant disruptions to global liquefied natural gas (LNG) supplies, leading to what is expected to be the steepest annual decline in LNG output on record. This supply crunch is not only intensifying competition among importers but also has far-reaching implications for energy prices and currency valuations, particularly in economies heavily reliant on imports of LNG. With energy markets closely intertwined with forex dynamics, the heightened volatility and competition may translate into heightened fluctuations in currency pairs related to energy exporters and importers alike.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The prevailing market conditions, influenced by the Iran situation, may sway consensus as demand dynamics shift in energy markets.
How firms align
Goldman is positioning itself in alignment with the narrative around increased energy prices, forecasting 1.10 for the EUR/USD (see /reports/goldman). Conversely, BofA maintains a more bearish stance, supporting a lower target of 1.04, which could reflect their expectation of deeper impacts from the LNG supply issues (see /reports/bofa).
What the data shows
Despite the downward pressure on LNG supplies, most forecasts have yet to significantly revise currency targets, but the volatility introduced by the Iran conflict may prompt updates soon. Thus far, expectations on global energy supply have been detailed in our recent insights, particularly around shifting consumption patterns (/research/energyinsight).
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Iran conflict poised to create record declines in global LNG supply.
- 02Expect increased volatility in energy-related FX pairs as import pressures mount.
- 03Traders should monitor energy price movements; key risk level at 1.075 for EUR/USD.
Market implications
Traders should prepare for potential shifts around key energy data releases and geopolitical updates. A pivotal level to watch is the 1.075 mark in EUR/USD, which aligns with our consensus, as any breach could signal a shift in market sentiment.
Risks to this view
A resolution to the Iran conflict or diversification of LNG sources could quickly invalidate the prevailing bearish view on import-dependent currencies. Should supply stabilizations occur from alternative sources, we could see a reversal in the current trends.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.35
Sources & References
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