The US-Israel war on Iran has sent shockwaves through commodity markets since February 28, resulting in a 4.5% week-on-week rise in the Bloomberg Commodity Index as of March 5, led by gains in the energy complex of 14.9% week-on-week.

In its ‘Global Commodities Outlook’,  BMI – a Fitch Solutions Company – says it expects market fears of a prolonged disruption to traffic on the Strait of Hormuz to fuel further volatility across the commodities complex, with a prolonged conflict tilting the balance of risks for oil and gas and aluminium prices, in particular, significantly to the upside.

BMI says the initial surge in precious metals, notably gold, has been somewhat mitigated by renewed dollar strength, posing headwinds for the safe-haven yet non-yielding asset.

The company says it expects significant yet short-lived rallies in oil and gas prices, followed by rapid retracement as regional flows normalise and geopolitical risk premia fades.

However, it notes that the balance of risk to its current price outlooks are skewed squarely to the upside.

BMI says energy markets are experiencing highly uneven impacts from the ongoing US-Israel war on Iran, with European and Asian gas markets and global distillates markets facing the most acute vulnerabilities.

It says the response in crude has been relatively well contained, with Brent rallying around 15% versus pre-conflict levels to trade at $84/bl.

The company says this aligns with its core price scenario, which sees Brent trading in a range of $75/bl to $90/bl over the coming weeks, before selling off sharply in the second quarter, as investors refocus on bearish underlying fundamentals.

However, BMI warns that escalation risks are substantial, with regional oil and gas infrastructure subject to attack and transit in the Strait of Hormuz effectively ground to a halt.

“A large conflict-related risk premium had already been priced into Brent ahead of time and loose physical market fundamentals and large storage buffers are helping to cushion the initial blow.

“Crucially though, price action reflects the expectation that the conflict – and its associated supply-side disruptions – will be short-lived and that risk premia will fade rapidly once the conflict ends.”

So far, BMI notes that crude production and export losses have primarily been the result of pre-emptive asset shutdowns, risk avoidance behaviour around the strait and emerging storage bottlenecks, all of which can be quickly reversed.

However, risk perceptions – and the associated price response – could easily change, if there are growing strikes on critical infrastructure – leading to compounding unplanned outages and extended repair horizons – or more kinetic disruptions in the strait, such as attempts by Iran to mine the waters, the report says.

Globally, BMI explains, storage buffers are substantial, including large strategic reserves, commercial inventories and bloated volumes of oil on water.

However, it notes that storage capacity varies widely by market, with many larger economies having cover for several months’ demand, while many smaller economies, which have generally thinner buffers, could exhaust their stocks within weeks.

Several markets have already announced export bans, to conserve supplies for their domestic markets.

With upwards of 15-million bbl/d of regional supply at risk, and limited spare production capacity outside of the Gulf, physical market pressures would rapidly build if the conflict dragged on, says BMI.

In recognition of this, it notes that the US has offered to escort, and provide insurance to, tankers transiting the strait.

“However, absent a significant de-escalation in the conflict, this would be a high-risk move, and we question how soon flows could resume and at what level.”

The report notes that different parts of the oil complex are being affected differently, with refined fuels grappling with the greatest distortions.

BMI explains that middle distillate markets were already relatively tight heading into the conflict, and the company adds that it sees several dynamics in play that will lead these products – including diesel and jet fuel – outperforming this month.

This includes Gulf crude production being skewed towards medium and heavy sour crude grades, which give a higher inherent distillate yield. BMI says the temporary loss of access to these volumes through the strait is limited refiners’ capacity to optimise runs for diesel and jet fuel.

Secondly, the company says configuration of Gulf refineries is geared towards middle distillate production, and the region is a key exporter of these fuels.

BMI says its importance has risen in the wake of the Russia-Ukraine war, helping plug a structural deficit in distillates in Europe.

Thirdly, BMI notes that the Atlantic Basin maintenance season is taking a large chunk of refining capacity offline in Europe and North America and this, coupled with refinery run cuts in Asia triggered by trade disruptions, is limiting the supply-side response to sharply widening crack spreads.

Lastly, it notes that fuel markets – notably jet fuel – can be difficult to rebalance in the short term, due to differences in market regulations and fuel standards, specialised logistical requirements, and rigid contractual and supply chain structures.

NATURAL GAS

BMI says the conflict in the Middle East has had an outsized impact on natural gas markets over the past week, with net importers in Europe and Asia having seen prices skyrocket since February 27.

“Should the war extend beyond our Country Risk analysts' base scenario (two-three weeks), and tanker traffic remain limited in the Strait of Hormuz, we can expect sustained higher European hub prices above €40/MWh into the second quarter.”

Otherwise, like with oil, BMI says it anticipates a sell-off in the second quarter as risk premia fades.

It notes that Dutch title transfer facility (TTF) front month prices have risen by 54.4% from €31.6/MWh on February 27 to €48.8/MWh, while UK National Balancing Point (NBP) prices have risen by 61.4% from £78.60 a therm to £126.90 a therm across the same time period.

BMI says the ongoing disruption in the Strait of Hormuz has severely constrained flows of liquefied natural gas (LNG) out of the Persian Gulf, which supplies about 20% of global LNG.

Adding to supply tightness, BMI notes that QatarEnergy shut down liquefaction at Ras Laffan – the world’s largest LNG production facility with a 77-million-tonne-a-year capacity – following a drone strike.

BMI says Qatari LNG is more fundamental to Asian supply than for Europe, with up to 80% of Qatar’s total LNG exports in 2025 sent to Asian buyers, the largest being Mainland China, India, and South Korea.

Europe imported about 12% to 14% of its LNG from Qatar in 2025, with the largest importing markets illustrated in the chart below.

Given the existing supply tightness in Europe from their diversification from Russia, exemplified by the EU’s RePowerEU plan – which bans Russian LNG from January 1, 2027 – BMI says the continent will see its reliance on US LNG entrenched even further in the coming weeks and quarters if the war extends - the US supplies 58% of EU LNG last year.

The bloc also sources smaller amounts of LNG from ⁠the United Arab Emirates (UAE) and Oman.

To compensate for the loss of Qatari LNG, BMI says European and Asian markets will have to compete for more expensive spot purchases, explaining the spike in Dutch TTF, UK NBP and Japan/Korea Market (JKM) LNG.

Henry Hub by contrast has seen minimal price action. BMI says the near-term outlook for US domestic supply and demand remains relatively balanced.

However, in the event of prolonged and deepening disruption in global LNG markets, the company says higher demand for US LNG will support Henry Hub prices, although the impact will be limited by liquefaction capacity constraints in the US LNG sector.

Henry Hub’s front-month price rose 4.7% on Monday, March 2, reaching $3.1 mnbtu in immediate reaction to the US-Iran conflict and increasingly severe disruptions to global oil and LNG flows.

BMI says the US natural gas market opened almost 5% above Friday’s close owing to elevated risks to global LNG flows stemming from the US-Iran conflict, given the US’s growing exposure to global gas markets through its role as the largest and fastest-growing LNG exporter.

It notes that the potential for higher demand for US LNG adds upside risks to its current forecast for 11% year-on-year growth in US net LNG exports.

However, the potential upside is limited by technical capacity constraints.

“Operating terminals are producing at or close to maximum capacity and, while we expect that a ninth terminal, Golden Pass, will become operational in the first half of this year, adding surplus liquefaction capacity, the newest terminal is expected to ramp up gradually and reach full capacity in the first half of 2027,” says BMI.

ALUMINIUM

Among industrial metals, BMI posits that aluminium will see the largest gains from disruptions in the region, as heightened risks around the Strait of Hormuz, a critical export corridor for Middle East aluminium producers, are adding to existing supply-side concerns.

BMI says prices are likely to stay elevated in the coming weeks, and, in line with its view, continued closure and disruption of the Strait of Hormuz might push aluminium towards $3 500/t.

With the market already expected to run a deficit this year, the report says that a more prolonged, large-scale disruption could drive prices as high as $3 700/t.

BMI points out that aluminium prices are hovering around $3 330/t at the time of writing on March 5, up 5.5% week-on-week, after touching $3 418/t a day earlier, the highest level since April 2022, as Aluminium Bahrain (Alba) declared force majeure on its deliveries, citing transit issues through the Strait of Hormuz.

BMI notes that this follows Qatalum’s announcement on March 3 of a controlled production shutdown owing to natural gas shortages.

The nickel market also emerges as the hidden vulnerability within the industrial metals complex, as the Strait of Hormuz disruption threatens Middle East sulphur exports, a critical input for Indonesia’s high-pressure acid leaching operations, pushing up mixed hydroxide precipitate production costs and eroding its low-cost advantage.

In 2025, BMI explains that Indonesia imported about 5.35-million tonnes of sulphur, with about 76% sourced from the Middle East, including 1.76-million tonnes from Saudi Arabia and 930 000 t from Qatar.

BMI says this cost shock could lift nickel intermediates’ marginal costs and, if prolonged, fuel upside to nickel prices via tighter supply along with higher input and freight costs.

PRECIOUS METALS

BMI posits that gold will remain acutely sensitive to geopolitical developments in the Middle East in the coming weeks, with bullion likely to find support should the conflict extend for longer and escalate beyond current market expectations, prompting a quick risk repricing and a rebuild in safe-haven demand to pull prices back towards recent or even unprecedented peaks.

“That said, a reinforced shift from safe-haven allocation towards macro-driven positioning could skew risks further to the downside, as a stronger dollar and the receding probability of Fed easing dominate the narrative.

“While geopolitics will continue to sustain a bullish story, gold is now expected to find itself in a tug-of-war between safe-haven demand and macro pressures.”

BMI notes that gold initially surged as escalating geopolitical tensions gave fresh impetus to safe-haven demand, pushing prices towards $5 419/oz on March 2, but the move failed to gain traction, with bullion subsequently unwinding the prior geopolitics-led rally.

Gold closed at $5 140/oz on March 4, weighed down by a stronger dollar, while earlier liquidation to cover losses elsewhere added to the downside pressure.

BMI explains that prices were hovering at about $5 157/oz on March 5, paring some of the losses but are likely to face a challenging macro backdrop, although widening geopolitical uncertainty should continue to provide support.