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Crisis in the Middle East: How would global gas markets cope if Iran closes the Strait of Hormuz?

The Israeli-Palestinian conflict in October has resulted in cuts to Israeli gas production but has otherwise not affected oil and gas supply significantly. However, if the conflict were to widen throughout the region, it could cause a number of ramifications. One of the most extreme reactions from Iran could be to enforce a blockade of shipping through the Strait of Hormuz, which the country has threatened in the past. Whilst the likeliness of this scenario occurring is low, it could cut world markets off from all Qatari and Emirati LNG, which together account for about 120bcm/a or 22% of global LNG trade.

Following the Russian-Ukraine war in early 2022, global gas markets have demonstrated limited flexibility to replace disrupted supply. Our latest Strategic Insight report investigates the risks posed by an Iranian closure of the Strait of Hormuz on global gas markets, halting shipments of all LNG out of the Persian Gulf.

This report aims to answer the following questions:

  • Why is the Strait of Hormuz so important for oil and gas markets, and how has Iran used it for geopolitical power in the past?
  • Is there any unused LNG liquefaction capacity that could help compensate for the loss of Persian Gulf LNG from global gas markets?
  • How much must consumption drop in European and Asian markets to close the gap?
  • Which regions are most at risk of supply shortages?
  • How will Europe make up for lost supply, and how much would it cost to refill depleted storage inventories next summer?

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