Iran’s recent attack on Israel has escalated the tensions in the Middle East and raised concerns over LNG trade through the Strait of Hormuz (SoH), a key and only feasible passage for Qatar and the UAE to export LNG. Any further escalation, leading to the closure of the SoH could impact LNG shipping as 21% of the global LNG supply could be affected, according to Drewry.
The Strait of Hormuz is a vital strategic passage for the Middle East, supporting its international trade and regional integration. The artery is significant for the LNG sector as two key LNG exporters – Qatar and UAE - export their LNG shipments via the SoH with no other possible alternative available. Thus, any action by Iran, leading to the closure will have significant implications for the LNG market. However, the extent of the impact will differ and depend on the duration of the closure.
In 2023, Qatar exported about 81 million tonnes of LNG and the UAE exported 4 million tonnes, contributing 21% to the global supply. Any supply blockage will not only hurt exporters of these two countries but will also compel key importers to scout for new sources. Between Asia and Europe, the former will have a much greater impact as 70% of Qatar’s volumes are exported to Asia while 20% to Europe.
Some countries, such as India and China, will be at high risk as these countries source about 45% and 25% of their total LNG imports from Qatar every year, respectively (based on the 2023 trade statistics).
Meanwhile, European importers including, the UK, Italy and Belgium, will also need to source LNG from other countries, if supply from Qatar becomes impossable.