The escalating conflict involving Iran is widely perceived as an oil‑market risk, yet its most profound and immediate consequences are emerging in global gas and LNG markets. We have summarized in the following 10 points the key issues impacting natural gas and LNG markets globally from the Iran conflict.
1. Expect LNG to become the primary mechanism of the Iran conflict’s impact on global gas pricing, because the Strait of Hormuz is the binding constraint.
The widening conflict involving Iran is often framed as an oil‑market story. In reality, its most immediate and destabilizing consequences are unfolding in gas and LNG, where physical rigidity, geographic concentration, and limited short‑term substitutes make the system acutely vulnerable. Roughly 110 bcm of LNG—about 20% of global LNG trade—transited the Strait of Hormuz in 2025, equivalent to around 2 bcm per week. Unlike oil, there is no meaningful rerouting option for these volumes. Qatari and UAE LNG must pass through Hormuz, and liquefaction capacity elsewhere is already operating near full utilization. As a result, any sustained disruption translates almost immediately into global gas pricing, regardless of whether countries import Gulf LNG directly.
2. Price formation is likely to remain “duration‑driven,” with a step‑change in outcomes once disruption extends beyond a couple of weeks.
Timing and duration matter more than the initial shock. One week will unsettle markets; a month force a scramble for replacement cargoes; but anything longer risks outright demand destruction. Unlike the Russia-Ukraine war in 2022, there is no large alternative supply pool waiting in the wings. Incremental LNG coming online helps at the margin but cannot replace Gulf volumes in real time.
3. The immediate forward curve is likely to embed a higher geopolitical premium because physical LNG supply is already operating near capacity.
The LNG system is running with very little slack. Facility utilizations are at high rates because markets have been in crisis mode since 2022. That leaves no buffer to absorb a sudden loss of 100+ bcm on an annualized basis. In this environment, price signals rise sharply not to attract new supply—but to force demand adjustment.
4. Asia will be the epicenter of physical stress, while pricing stress concentrates in Europe.
The geographic split of risk is asymmetric. In 2025, around 25% of LNG transiting Hormuz went to China, 18% to India, 10% to Taiwan, 9% to South Korea, and 8% to Pakistan, while only ~12% went to the EU and UK. (See Exhibit 1). Asia therefore faces the largest physical shortfall. Europe, by contrast, faces the sharpest price exposure because its markets clear globally and are heavily spot‑indexed.
Exhibit 1. Distribution of LNG transitioning the Strait of Hormuz in 2025.
5. Import‑dependent systems (Japan, South Korea, Taiwan) face the sharpest security‑of‑supply risk, accelerating emergency procurement and policy intervention.
Japan, South Korea, and Taiwan are almost 100% dependent on LNG imports. Taiwan is particularly exposed, with roughly one‑third of its LNG supply linked to Qatar and the UAE. Once inventories are drawn down, these systems must either secure replacement cargoes at almost any price or curtail demand rapidly—turning gas supply into a power‑system and political stability issue.
6. South Asia is structurally exposed to affordability‑driven demand destruction, not just higher prices.
For India, Pakistan, and Bangladesh, the binding constraint is not access but affordability. If spot prices spike sharply, these countries are unlikely to compete with wealthier buyers. The adjustment mechanism is therefore demand destruction—power outages, industrial curtailments, and fiscal stress—rather than substitution.
7. Europe’s risk is amplified by low inventories during the refill season, increasing competition for Atlantic Basin cargoes.
Europe is entering the injection season with storage around ~30%, materially lower than typical levels. Even though Europe imports a smaller share of Gulf LNG, disruption at this point in the cycle sharply increases vulnerability. Replacement cargoes will be harder to secure, and competition with Asia for marginal LNG volumes will intensify.
8. Expect fuel switching to tilt toward coal (not oil), raising power‑sector emissions and complicating energy‑transition narratives.
Unlike 2022, oil flows are also affected, removing oil as a fallback option. That leaves coal as the primary alternative fuel. If LNG disruption persists, coal‑fired generation will rise across Asia and parts of Europe, temporarily reversing emissions gains and complicating decarbonization strategies.
9. Regional pipeline spillovers could tighten adjacent markets and indirectly raise LNG demand, with Turkey a focal node.
Beyond LNG, the conflict threatens pipeline exports from Iran to Turkey (around 8 bcm annually) and has already disrupted gas flows from Israel to Egypt and Jordan. These regional losses are manageable individually, but collectively they push additional demand into an already stressed LNG market, amplifying price pressure.
10. Strategically, the conflict will likely accelerate contracting and supplier diversification toward perceived reliability, benefiting U.S. LNG—but not providing immediate physical relief.
New U.S. LNG capacity will help over time, but it cannot immediately replace Hormuz volumes. In the near term, the strategic impact is behavioral: buyers will prioritize security of supply, diversify portfolios, and reduce exposure to single chokepoints. Even if flows resume, this episode reinforces LNG’s evolution from a purely commercial market into a geopolitically constrained system.
In sum, the Iran conflict exposes just how fragile and interconnected the global LNG system has become. While new LNG capacity, particularly from the U.S., will eventually broaden global resilience, this episode underscores a fundamental shift: LNG is now at the center of global energy security, and geopolitical tensions will increasingly dictate market outcomes.
– Uday Turaga
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