NextFin News - The war in the Middle East has produced a paradox that energy markets did not expect: a supply shock steep enough to lift gas prices to their highest levels since the 2022 crisis is now doing what years of climate policy could not - destroying demand for liquefied natural gas. The International Energy Agency forecasts global gas consumption will contract 0.5 percent in 2026, about 20 billion cubic metres, the third annual decline this decade. The Strait of Hormuz, which normally carries roughly one-fifth of global LNG supplies, has been effectively closed since the conflict began in late February, and the resulting price spike is pushing buyers toward coal, renewables and non-Gulf suppliers.
The Paradox: A Supply Shock That Destroys Demand
The sequence is counterintuitive and worth laying out plainly. A war breaks out in the Gulf. A chokepoint closes. Supply collapses. Prices surge - the textbook setup for a scarcity rally that enriches producers and punishes consumers. That is what happened in March, when spot gas prices in Asia and Europe jumped to their highest monthly averages since January 2023. But the expected second act - producers capturing windfall margins while buyers absorb the pain - never arrived. Instead, demand simply evaporated.
This is the crucial distinction between the 2022 energy crisis and the current one. In 2022, the shock came from a pipeline cutoff to Europe, and demand held because there was no immediate substitute at scale; buyers bid for LNG and absorbed the price. In 2026, the shock hits a market that is already price-sensitive, and the buyers most exposed - cash-strapped Asian importers - have a cheaper alternative sitting idle: coal. So the supply shock transmits into demand destruction rather than producer rents. The IEA's forecast of a 0.5 percent global gas decline, with Asia's consumption down about 1 percent in the first half of the year, is the arithmetic of that transmission.
The mechanism is not mysterious. When JKM, Asia's spot LNG benchmark, averages $17.50 per million British thermal units - 45 percent above a year earlier - a power generator in Southeast Asia does not philosophize about energy transition. It runs the numbers. Coal is cheaper, it is domestically available in several of these markets, and the plants are already built. The switch is a spreadsheet decision, and it is happening at scale across the region's power sector.
How the Chokepoint Became a Demand Weapon
The numbers behind the supply collapse are severe. LNG loadings from Qatar and the United Arab Emirates fell by 35 billion cubic metres year-on-year between March and June, an almost 80 percent drop against the same four months of 2025. For the full year, the IEA expects combined Gulf output to fall about 45 percent, or roughly 54 bcm. Roughly 82 percent of Qatar and UAE LNG exports flow to Asian buyers, which is why the pain has been concentrated in Asia rather than Europe.
Prices transmitted the shock immediately. Europe's TTF benchmark rose 32 percent year-on-year to an average of nearly $16/mmBtu in the second quarter, the highest quarterly average since 2022. Asia's JKM averaged $17.50/mmBtu, up 45 percent. Both regions recorded their highest monthly averages since January 2023 in March, at the height of the disruption. For price-sensitive Asian utilities, that spread against coal widened beyond the point of economic sense.
The oil market tells a parallel story of risk repricing. Front-month Brent crude held above $100 a barrel in early September, settling near $101.36, while WTI traded around $96.36 - the highest closing levels for both since late May. Goldman Sachs' oil strategy desk raised its price targets, citing potential upside toward $120 a barrel as the conflict deepens. The energy complex is pricing a persistent risk premium, not a passing disruption.
There is an important nuance often missed in the oil-gas comparison. US natural gas prices have remained relatively flat even as crude oil surged, because natural gas is a more regional commodity and the United States is insulated from Hormuz by geography and by its own production base. That divergence underscores the point: the Hormuz shock is not a uniform global gas shortage. It is a regional deliverability crisis with global price consequences.
Why the Full-Year Supply Picture Masks the Damage
On the surface, the global LNG balance looks surprisingly resilient. The IEA expects worldwide LNG supply to remain broadly unchanged in 2026, because new projects in North America, Africa and Australia are adding close to 50 bcm, and legacy projects are contributing more than 10 bcm as feedgas availability improves - together offsetting the roughly 54 bcm loss from the Gulf. Shell, in its annual LNG outlook, said trade could stay flat this year if flows normalize within three months, with growth resuming in 2027.
This aggregate comfort is misleading for two reasons, and they matter for the demand question. First, the offset is geographic and contractual, not deliverable to the same buyers on the same terms. A cargo from the US Gulf Coast does not reach a Pakistani or Jordanian power plant through existing pipeline and regasification connections, and it does not arrive at a Qatari long-term contract price. Replacement gas is available - but to different buyers, at different prices, with different infrastructure. The market clears; the original customers do not necessarily get served.
Second, the IEA's baseline rests on an assumption that the market has not yet validated: the strait fully reopens in the third quarter and Gulf operations are restored by early in the fourth quarter. The agency's own warning is explicit - if the reopening slips beyond the start of Q4, global LNG supply would post its first annual decline since 2012. The force-majeure record shows how far the market sits from that assumption.
QatarEnergy first declared force majeure in early March, after Iranian attacks on its Ras Laffan facility - the world's largest LNG export hub. The cancellations have been extended month after month. Edison, the Italian utility, said 21 cargoes due between April and September were cancelled, equivalent to 2.7 billion cubic metres of gas against Italy's annual demand of 62 billion cubic metres. By September the number of affected cargoes had risen to 29, or about 3.8 bcm. Rystad Energy estimates the Ras Laffan attacks alone could wipe out roughly 25 percent of Qatar's projected 2026 LNG output, about 20 million tonnes per annum.
Buyers are no longer negotiating only over price. They are negotiating over whether cargoes will arrive at all - demanding guarantees of replacement volumes from alternative projects, such as Qatar's Golden Pass terminal in the United States, if Hormuz exports are disrupted again.
The Security Premium Is Structural, Not Cyclical
Here lies the deeper shift, and it is the heart of the long-term demand question. Before this war, the argument for Gulf LNG was economic: it was the lowest-cost, most scalable source of flexible supply in a market that was heading for a glut. After Ras Laffan was hit and Hormuz traffic halted, the argument inverted. The question buyers now ask is not "how cheap is this cargo?" but "what is the probability it arrives?" That is a permanent change in the risk profile of Gulf energy, and it will outlast the conflict.
"Going forward (Gulf suppliers) will have to contend with a new risk profile stemming from what happened in the Strait of Hormuz and from the fact that nobody can rule out the possibility of a recurrence in the future," said Nicola Monti, chief executive of Italy's Edison.
The market is already pricing that premium. Long-term LNG contracts from Qatar and the UAE were typically priced at 12.6 percent to 12.7 percent of the Brent crude price before the war; some deals signed since have been concluded closer to 12.3 percent, suggesting buyers are already factoring in higher regional risk. Insurance costs on Gulf deliveries have climbed, and carriers have resorted to ship-to-ship transfers outside the strait - a costly, unusual workaround for LNG that signals how abnormal conditions remain. ADNOC, among the producers hardest hit, is accelerating a pipeline to Fujairah that would double export capacity to the port sitting outside the chokepoint by next year.
This security premium creates a durable advantage for producers outside the Gulf. The United States, Canada, Brazil and Guyana are positioned to capture investment and market share as buyers diversify toward geopolitically safer supply. That reallocation is a structural shift in trade flows, not a temporary price spike. It also accelerates the capital redirection that threatens long-term gas demand: money that would have funded new gas-fired plants and Gulf offtake contracts is flowing instead toward energy security assets - renewables, nuclear, and non-Gulf supply chains.
The Counter-Thesis: Gas Still Wins the Long Run
The strongest case against this reading is that the fundamentals of gas demand remain intact, and that 2026 is a one-off price effect rather than a regime change. Shell's annual LNG outlook makes this argument directly: the company expects global LNG demand to rise by around 65 percent by 2050, reaching nearly 700 million tonnes a year, driven by Asia's search for lower-emission alternatives to coal and by data-centre power demand. Shell noted that about 180 million tonnes per year of new LNG supply is forecast to enter the market by 2030, improving availability and affordability, and that Asia will need around 300 million tonnes a year by 2050 as domestic gas production declines.
"The conflict created a system-wide shock with disruption cascading across all segments of the economy, but the LNG industry has proved resilient and able to adapt to changing market conditions," said Cederic Cremers, Shell's president of integrated gas, pointing to growth in supply and regasification infrastructure that helped limit the impact of the Hormuz disruption.
There is real force to this view. History shows fuel switching reverses when price spreads normalize, and the coming supply wave should cap prices once Gulf volumes return. A 0.5 percent demand decline is modest in absolute terms. Gas remains the preferred transition fuel for utilities that cannot yet rely on intermittent renewables, and the long-run electrification and data-centre story is genuine.
But this counter-thesis underestimates the second-order effect of a security shock on investment. Even if demand recovers cyclically, the capital decisions triggered by this crisis are multi-decade commitments. A power generator that builds a coal unit today, or signs a 20-year offtake contract with a US exporter instead of a Gulf supplier, does not reverse course when Hormuz reopens. The cyclical price spike is triggering structural capital reallocation, and that is the damage that persists. Shell's own 65 percent growth forecast is a demand projection, not a deliverability guarantee - and it assumes a world in which the security premium that buyers now demand is either absorbed or priced away. That assumption is precisely what the crisis has called into question.
Who Benefits, Who Is Exposed
The asymmetry is clear. The exposed are the price-sensitive Asian importers - South Asian and Southeast Asian utilities that relied on competitively priced Gulf term cargoes and lack the balance sheets to outbid Europe for replacement volumes. They face the worst of both worlds: higher costs and less reliable supply. Gulf producers are exposed too, not because they lack volumes but because their core selling proposition - cheap, reliable, scalable supply - has been damaged. Restoring buyer confidence will require years of uninterrupted deliveries and possibly permanent pricing concessions.
The beneficiaries are producers outside the Gulf and the alternatives to gas. US, Canadian, Brazilian and Guyanese exporters gain market share and investment. Coal producers gain a reprieve in Asian power markets. Renewable energy and nuclear gain policy support and capital as governments treat energy security as a strategic priority rather than a cost-minimization exercise. The irony is sharp: the energy shock intended to punish producers is accelerating the very transition that threatens their long-term business model.
What to Watch
The base case is that the strait reopens before the fourth quarter, Gulf supply gradually restores, and gas demand stabilizes in 2027 - but at a lower share of the Asian power mix than before the war. The upside case for gas is a fast, secure reopening that brings spot prices back below $12/mmBtu and restores the coal-to-gas switch. The downside case is a prolonged closure that keeps supply disrupted, pushes prices toward the levels Equinor has warned could trigger a critical European shortfall, and confirms the first annual LNG supply decline since 2012.
Three signals will separate these paths. First, whether Hormuz traffic returns to pre-conflict volumes by October 2026. Second, whether QatarEnergy's force majeure is lifted or extended further into late 2026 and beyond. Third, and most telling, whether Asian utilities announce new long-term gas-fired capacity and Gulf offtake contracts, or instead commit to coal, renewables and non-Gulf supply - the investment decisions that lock in today's fuel switching.
The falsifying signal for the structural-demand-erosion thesis is specific: if Asian LNG import volumes recover to pre-crisis trend within two quarters of the strait reopening, and if new long-term Gulf contracts are signed at pre-war pricing terms (12.6 percent to 12.7 percent of Brent) rather than at a security discount, then the damage is cyclical and the thesis is wrong. If neither happens, the erosion is structural.
The Hormuz crisis will eventually end. What it has already done is harder to reverse: it taught the world that the cheapest molecule is not the safest one, and that lesson will reshape LNG demand long after the strait reopens.
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