Strait of Hormuz threat already impacting Asian LNG

The ongoing war in Iran has already impacted Asian LNG markets. On March 4th, state-run Qatar Energy declared force majeure at its Ras Laffan plant and said that it won’t be able to return to normal production and export levels for at least a month.

Qatar is one of the world’s top LNG exporters, with a liquefaction capacity of some 77 mtpa. More crucially, around 80% of its production is sold to buyers in the Asia-Pacific region, home to some two-thirds of global LNG demand. Qatar accounts for around 20% of global LNG trade.

The U.S.-Iran escalation and disruption to shipping through the Strait of Hormuz already pushed LNG and gas prices higher since the conflict threatened flows through a route that carries a major share of global LNG trade, especially to Asia.

European gas prices surged from about €30/MWh to above €60/MWh by March 3rd, nearly doubling within days. Notably, around a fifth of global LNG trade flows through the geopolitically sensitive Strait.

Force majeure

After Qatar Energy announced force majeure, spot LNG prices in Asia moved dramatically. The Japan Korea Marker (JKM) benchmark for spot LNG in the region spiked nearly 60% to $25.40/MMBtu for April delivery, the highest since 2023. That was more than double the previous week’s level, reflecting panic buying and expected supply shortages.

More troubling for LNG buyers has been traders seizing arbitrage opportunities, redirecting trade from the Atlantic Basin to Asia-Pacific buyers. On March 4th, the spread between Asian and Atlantic Basin gas benchmarks widened to about $5.10/MMBtu in favour of Asia.

Global oil and gas shipping costs had already surged as Iran vowed to close the Strait of Hormuz. By Tuesday March 3rd, Atlantic and Pacific LNG freight rates jumped more than 40%. Atlantic rates increased to $61,000 per day, while Pacific rates increased to $41,000 per day, up from $12,500 on Friday, Reuters reported. Some shipping analysts estimated that LNG shipping rates to Asia could spike to over $100,000 per day on tight supply.

Freight rates matter because they compound the supply shock. Even if replacement cargoes can be sourced, getting them to Asia import terminals becomes naturally more expensive.

Shipping rates spike

Shipping insurance rates are also spiking. Marine insurers have raised war-risk premiums dramatically for ships transiting the Strait of Hormuz since the escalation in conflict. Premiums that previously cost roughly 0.25% of a vessel’s insured value per voyage have jumped to around 3% in some cases, representing a twelve-fold increase for ships entering the Gulf. For a modern LNG carrier or supertanker valued near $100 million, that means insurance alone can rise from roughly $250,000 to several million dollars per voyage.

Added to the fray, some insurers are cancelling cargoes entirely. Several global marine insurers have issued cancellation notices for war-risk policies covering ships operating in the Gulf and Strait of Hormuz due to the escalating military threat.

Insurers can shut a shipping lane even if it’s physically open. In several crises, they have raised premiums or cancelled coverage, which had the same practical effect as a blockade. In other words, shipowners simply refuse to transit the area. If ships can’t secure affordable insurance, the Strait becomes commercially unusable even without a formal closure.

South Asia hit the hardest

Hardest hit from the price fallout will be South Asian buyers Bangladesh, Sri Lanka and Pakistan that procure a large percentage of their LNG through the spot market instead of long-term contracts. When LNG prices spike, these already cash-strapped countries often cancel tenders or reduce purchases, which can lead to contract cancellation and other costly penalties.

According to the Institute for Energy Economics and Financial Analysis (IEEFA), Pakistan and Bangladesh have repeatedly cancelled LNG tenders when spot prices surge because utilities can’t afford cargoes or pass costs to consumers.

The World Bank, for its part, notes that South Asian LNG buyers face tight foreign-exchange reserves and subsidised power markets, making them especially vulnerable when global LNG prices rise.

The disruption is also impacting India. Petronet LNG, the largest LNG importer in India, declared force majeure after it said it couldn’t receive LNG shipments from Qatar due to the crisis, The Economic Times reported.

The company also issued force majeure notices to domestic customers including GAIL (India) Ltd., Indian Oil Corp., and Bharat Petroleum Corp. Ltd.

India imported about 27 million tonnes of LNG in FY25, accounting for roughly half of the country’s total gas consumption, the report added, citing government data.

East Asia exposure

The rest of the region can weather LNG disruptions easier than South Asia. Japan, for its part, remains exposed, but not immediately vulnerable because of supply diversification and reserves. Japan has about three weeks of LNG reserves on hand, according to reports.

South Korea is more exposed than Japan to Gulf LNG flows. About 20% of the country’s LNG imports come from the Middle East. Adding to the uncertainty, the South Korean maritime industry has ordered that shippers refrain from operating in the Middle East. South Korea is the world’s third largest LNG importer after Japan and China. Seoul has already stated that it may seek additional supply from outside the region if disruptions persist.

China is structurally exposed because it’s one of the largest buyers of Qatari LNG. Long term contracts with Qatar mean the country depends heavily on Gulf supply routes through Hormuz.

If the situation persists, China may also start sourcing additional cargoes from the global market, adding to demand pressure. Since most of Australia’s LNG production is already tied to long term contracts, China might have to revive existing, but under-utilised, LNG contracts with the U.S. and also expensive spot shipments.

Southeast Asia

Southeast Asia’s impact is mostly price transmission, not supply loss. Countries like the Philippines, Thailand and Vietnam are already increasing LNG imports to support power demand, meaning higher LNG prices could raise power generation costs and strain government energy budgets.

(Writing by Tim Daiss; editing by Sophie Davies)