Full Breakdown
Impact of the U.S.-Israeli War on Global LNG Supply and Energy Prices
3/28/2026, 4:52:07 PM
Supply Disruptions and Construction Delays
The ongoing U.S.-Israeli war against Iran has significantly disrupted global liquefied natural gas (LNG) supply chains, leading to potential delays in the construction of new LNG projects in the United States. Michael Smith, CEO of Freeport LNG, highlighted at the CERAWeek energy conference that the conflict has already shuttered about 20% of global LNG supply due to Iran effectively blocking the Strait of Hormuz, a critical passage for oil and gas exports. The war's ramifications extend beyond immediate supply disruptions, affecting key materials such as steel and components necessary for LNG plant construction. Smith indicated that escalating costs, driven by inflation and labor shortages, could hinder the advancement of Freeport LNG's proposed fourth liquefaction train unless liquefaction fees reach $3 per million British thermal units (mmBtu).
Rising Energy Prices
The conflict has also led to soaring energy prices, with Brent crude oil prices rising above $100 per barrel amid uncertainty regarding the war's direction. As the U.S. and Israel launched attacks on Iran, global energy markets experienced volatility, with oil and gas prices climbing sharply. The Japan-Korea Marker (JKM) for LNG reached approximately $21/mmBtu, while European gas prices hovered around $17/mmBtu, significantly higher than pre-war averages of about $10/mmBtu. This price surge is expected to lead to demand destruction in lower-income Southeast Asian countries, which may revert to coal for electricity generation due to the unaffordability of LNG.
Damage to Energy Infrastructure
The war has caused extensive damage to energy infrastructure across the Persian Gulf, with over 40 energy assets across nine countries reported as severely impacted. The International Energy Agency (IEA) estimates that it could take up to five years to fully restore the damaged facilities, particularly the Ras Laffan liquefied natural gas complex in Qatar, which suffered strikes that damaged two production trains. The restoration of oil and gas production systems is complex, as engineers note that restarting operations requires careful management of pressure gradients and flow rates.
Criticism and Economic Fallout
Critics have pointed out that the war's economic fallout is already being felt globally, with UK businesses reporting significant increases in costs and adverse impacts on customer demand and supply chains. The S&P Global Purchasing Managers' Index indicated the largest monthly rise in costs since 1992. Additionally, the U.S. has temporarily waived sanctions on Russian oil and eased restrictions on Iranian oil at sea to mitigate the impact of rising energy prices.
Conflicting Reports and Future Outlook
While some industry leaders, such as Saudi Aramco's CEO Amin Nasser, anticipate a relatively quick return to full production for curtailed oil fields, others caution that the situation is more complex. The timeline for restoring production varies significantly based on whether fields were completely shut down or maintained at reduced rates. The IEA has indicated that managing the restart of traffic through the Strait of Hormuz will be a significant challenge, as a backlog of energy and other materials seeks to enter and exit the Gulf.
Verbatim Quotes
- “You can’t just push the pause button when oil flows are inconvenient,” — Jim Krane, Fellow at Rice University’s Baker Institute
- “The priority is to keep the fields running,” — Aditya Saraswat, Director of Research for Rystad Energy
- “South Asia was first to get that brunt. That's moved to south east Asia, north east Asia and then more so into Europe as we get into April.” — Wael Sawan, Chief Executive of Shell
- “The UK has diverse and resilient energy supply. We continue to work with partners on the international situation.” — UK Department for Energy Security and Net Zero Spokesperson
The ongoing conflict in the Middle East continues to pose significant challenges to global energy markets, with implications that may last well beyond the cessation of hostilities.
