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Escalating tensions in the Middle East could have far-flung impacts on global LNG supply chains over the coming months, with European and US flows among those that would be affected, researchers warn. 

The Strait of Hormuz, south of Iran, connects the Persian Gulf to the Indian Ocean, and was described by the US Energy Information Administration last year as “the world’s most important oil transit choke point”. 

Despite Israel and Hezbollah agreeing a 60-day ceasefire last week, growing tensions between Israel and Iran have reignited long-held concerns among oil and gas analysts that Iran could blockade the route. 

Although an unlikely prospect, one outcome of a blockade in the Strait of Hormuz would be a major shake-up of LNG flows to Europe, not least because it would shut off supply of gas from Qatar, experts say. 

“For Europe, a reduction in LNG shipments from Qatar would provide a significant challenge,” according to analysis published by S&P Global Market Intelligence this week. 

“At first sight, the degree of risk to supplies appears modest as Qatar supplied only 7.4% of EU imports of natural gas in the 12 months to August 31, 2024, similar to 2021 levels.  

“However, if Qatari gas supply to Asia were curtailed, this would risk diverting US volumes (20.3% of EU imports) to Asian markets.” 

Historically, the EU has sourced the majority of its liquefied and pipeline gas from Russia, but a significant proportion of those flows have been curtailed due to sanctions following the invasion of Ukraine. Last year, the US emerged as by far the largest supplier of LNG to Europe. 

Though the EU has also increased imports of gas from Algeria, Norway and the UK over the past year, a loss of supply from the US and the Middle East simultaneously could prove a major challenge. 

Kunro Irié, a visiting fellow at the Center for Strategic and International Studies’ energy security and climate change programme, says the “actual risk of a blockade appears low”.  

Despite threats from Iran to do so in the past, notably in 2011 when the US imposed sanctions on the country to curtail its nuclear programme, a blockade has never taken place before and would likely face resistance from US naval fleets in the region. 

But in an October paper, Irié says disruption to Qatari flows would affect around a fifth of current global LNG flows. 

“The Hormuz Strait is a critical choke point for Middle Eastern exports of oil and gas to the global market… Qatar exports roughly 20% of global LNG through the Hormuz Strait and onward to Asia and Europe.” 

Such a move would also complicate Iran’s own petroleum exports, the majority of which are to China via the Strait of Hormuz. 

Irié says that “individual cargoes or ships could be affected by increased tensions and a full blockade would have large implications for prices”. 

An article published last month by intelligence firm Wood Mackenzie says: “Despite Qatar’s relatively stable relations with Iran, and its crucial role in the LNG sector, the possibility of disruptions cannot be completely ruled out if conflict escalates in the region.” 

Wood MacKenzie adds that this scenario would also cause disruption to oil supply chains. 

Although Saudi Arabia and the UAE are able to export up to 6.5 million barrels per day through pipelines, a “large proportion of oil exports would be trapped”. 

A supply shortage of that magnitude would likely drive oil prices as high as US$125 per barrel “depending on how events unfold”, it says. 

The S&P Global Market Intelligence analysis says a price spike “would have downstream impacts for the plastics sector with an inflationary knock-on effect for many consumer and industrial goods”. 

“The prospect of an escalation to a wider regional war and the subsequent impact on global trade and energy prices remain a major risk to the European construction industry’s outlook in 2025, when a pickup in activity should increase demand for raw materials,” it adds.