LNG prices in Europe rose more than 50% after Qatar halted production at the world’s largest export facility after it was targeted in an Iranian drone attack. This unprecedented halt marks a dramatic escalation of the Iran war which now threatens energy security around the world.
European benchmark gas futures jumped the most in almost four years after QatarEnergy confirmed on Monday it had suspended production. Tankers had already stopped transiting the Strait of Hormuz – a vital artery for global fuel shipments.
QatarEnergy’s Ras Laffan plant supplies about a fifth of global LNG supply. The situation risks the most serious shock to gas markets since Russia’s invasion of Ukraine four years ago disrupted global energy trade.
While Asian countries buy most of the LNG shipped from the Middle East, any disruption would increase competition for alternative supplies – pushing up prices around the world, including in Europe.
Simone Tagliapietra, an analyst at Bruegel, said the plant’s closure “symbolizes the sudden acceleration of the energy implications of the situation.” “The threat to security of supply is here and now. Its extent will depend on the duration of the shutdown, but we are now in a new scenario.”
Shipping risks are exacerbating the disruption. The Strait of Hormuz is a major shipping route for energy, carrying about one-fifth of the world’s liquefied natural gas exports.
The dramatic slowdown of traffic through the waterway has caused major bottlenecks, leaving storage tanks for QatarEnergy full.
More than half of the world’s largest marine insurance clubs will stop providing war-risk cover for ships entering the Persian Gulf from Thursday, Bloomberg reported, which is likely to disrupt cargo loading in the region.
Additionally, Israel on Saturday ordered the temporary shutdown of some gas-producing capacities, including its largest Leviathan gas field. This prompted major importer Egypt to demand more LNG cargoes.
According to BloombergNEF, gas trade disruption in the Middle East could ultimately increase demand for LNG from Türkiye, as it imports pipeline fuel from Iran.
“The price shock from the loss of Middle East LNG could be similar in 2022 to what happened after Russia’s invasion of Ukraine,” said Mike Fullwood, senior research fellow at the Oxford Institute for Energy Studies. Such a surge “could have serious consequences for government budgets in Europe and Asia.”
The conflict is intensifying, with explosions being heard in Israel, Saudi Arabia, Qatar and the United Arab Emirates as the states intercepted Iranian missiles launched in response to US-Israeli attacks. US President Donald Trump said that the bombing campaign against Iran could last for weeks.
