SerpApi.Org
The resumption of the Iran conflict, including the effective closures of the Strait of Hormuz and now the Strait of Bab el-Mandeb has driven up natural gas prices, particularly in Europe and Asia.
Asia accounts for nearly 90% of liquefied natural gas (LNG) shipments from key Middle East producers like Qatar and the UAE, while Europe imports 7-11% of its LNG imports from the region.
European gas prices surged to four-month highs amid fears the US-Iran war will cause winter shortages. As The Guardian wrote,
The Dutch natural gas benchmark briefly rose above €60 a megawatt hour (MWh) on Monday, near the peaks seen at the start of the US-Iran conflict, after the US expanded its aerial offensive and Iran retaliated with strikes on Bahrain and Kuwait.
Analysts at Independent Commodity Intelligence Services (ICIS) said Europe’s gas supplies were facing pressure this winter, with the conflict delaying the expected recovery of Qatari liquefied natural gas (LNG) exports in the critical summer storage season.
The market intelligence firm said if the price of gas stayed above €60 it could mean costly state intervention to safeguard security of supply.
It noted that European gas storage is now less than 54% full compared with 64% at the same point last year.
ICIS calculated that only 26 LNG cargoes had managed to leave the Gulf since the conflict began on Feb. 28, compared to the usual 90-100 per month.
About 20% of the world’s oil and gas transited through the Strait of Hormuz before the war started. The Strait of Bab el-Mandeb normally receives about 7% of global oil output.
Another factor affecting LNG exports is the war itself. During spring 2026 missile and drone attacks, Iranian strikes hit Ras Laffan LNG Trains 4 & 6, and Pearl GTL Train 2. Ras Laffan owner QatarEnergy estimates repairs to the two units will sideline about 12.8 million tonnes per year of LNG capacity for three to five years.
Pearl GTL Train 2 co-owners Qatar Energy and Shell (NYSE:SHEL) anticipate the train will require a year-long outage for repairs.
According to the Platts Commodities Focus podcast by S&P Global Energy, what began as rising geopolitical tension in the Middle East quickly turned into a supply chain concern, especially once shipping through the Strait of Hormuz was disrupted, a key route for Qatari exports.
Concerns over Middle East supply disruptions pushed the Platts JKM (Japan/Korea Marker) close to mid-$25 per MMbtu, its highest level since December 2022, when LNG spiked due to the war in Ukraine. Platts JKM is the benchmark price for spot physical cargoes of LNG delivered to Japan, South Korea, China and Taiwan. It rose from about $15 at the beginning of May to the current $21.35 as of this writing.
S&P Global price reporter Cindy Yeo said “importers heavily affected by the loss of LNG supply included India, Bangladesh and Taiwan, who entered the spot market seeking replacement cargoes. At the same time, traders and portfolio players responded quickly to the surge in price volatility. Some sought to secure alternative supplies, while others took advantage of the wider price swings and arbitrage opportunities across regions.
“LNG transactions reported through the Physical Asia Platts Market on Close, or MOC assessment process rose 77% year-on-year to 62 transactions in the first quarter of 2026, from 35 a year earlier. Activity in the derivatives market increased even more sharply, with trading volumes jumping 251% year-on-year.”
Senior price reporter Suyash Pande said the impact from the Iran war was particularly strong in South Asia. Before the war, India was getting almost 60% of its LNG imports from the UAE and Qatar. As soon as the conflict began, there was a sharp collapse in the spread between the JKM and the West India Marker (WIM) benchmark.
Since then, the spread has widened due to different procurement strategies, he explained. For example, in India, there was an increase in tenders for prompt deliveries, which offered a discount to market prices. Whereas buyers were earlier purchasing cargoes more than 25 days forward, this changed to 20 or even 15 days forward.
Pande noted that India has several alternatives to LNG, including naphtha and fuel oil for refineries and propane for industry. When these fuels become more competitive with LNG, assuming they are available, buyers will try to make the switch.
Going forward, Yeo said there are two things the market should watch out for. First and obviously is whether LNG flows through the Middle East normalize or whether the situation escalates.
“The market has become more comfortable since the initial shock, but we have already seen how quickly risk premiums can return when concerns arise around supply or shipping loss,” she said.
Second is the Asia-Northwest Europe arbitrage, which will remain a key indicator for LNG prices and trade flows. The arbitrage, explained Yeo, is one of the fastest channels through which global LNG market developments are reflected in prices.
“Put simply, this spread alongside the freight costs tell us where marginal LNG cargoes are most likely to go. When JKM trades at a premium to NWE, suppliers have an incentive to send cargoes to Asia,” she said. “When the premium narrows or disappears, cargoes may be drawn back to Europe instead.”
James Taverner, executive director, global gas and LNG research, said it’s important to remember that the Middle East war comes at a time that the global LNG market is growing rapidly.
“Before the war, LNG supply globally was projected to grow by about 11% year-on-year in 2026, based on new projects coming online and ramping up, particularly for the US and Canada” he said. “However, as a result of the war, the lost Qatar and UAE supply offsets nearly all of that expected growth. Instead of energy supply increasing by 11% this year, we now think it will only increase by about 1% year-on-year instead, so it’s a very big change.”
It’s no surprise that Asian buyers have been most affected; last year 90% of the LNG that transited the Strait of Hormuz went to Asia.
Taverner noted the most demand destruction has occurred in Pakistan, where LNG imports have dropped by 75%; and South Korea, whose imports are down about 10% year on year. Regulators in South Korea have removed caps on coal-fired power generation to allow for more switching away from natural gas. China’s LNG imports are down 8% year on year, with gas-to-coal switching also happening there.
Along with the prospect of a powerful El Nino affecting rainfall levels and hydropower availability, Taverner flagged European gas storage fill levels as another signpost to watch. He noted that back in 2022, European governments offered incentives for companies to refill natural gas storage. The response, particularly in Germany, drove prices to record levels.
While policy measures for gas storage in Europe have been limited so far this year, “If we don't get close to [target] fill levels [by the start of winter], there's a risk of policy intervention, and support it may give to prices starts to increase.”
More than any other trend, however, Taverner said the war in Iran has reminded energy buyers and policymakers of the importance of security of supply. For example, LNG buyers would look to diversify away from Qatar and the UAE, whose reputations for reliability have been tarnished. US Gulf Coast refineries are vulnerable to hurricanes.
“So, for the next wave of energy contracting, we might expect security of supply to jump right to the top of buyers’ and policymakers’ concerns again and influence their decision-making, just as it did back in 2022 as well,” he said.
By Andrew Topf for Oilprice.com
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