Renewed military tensions in the Middle East are disrupting liquefied natural gas (LNG) shipments through the Strait of Hormuz, raising fresh concerns over global energy supplies and prices. The slowdown in cargo movement through the strategic waterway could tighten LNG availability across Asia, increasing import costs for countries such as India that rely heavily on overseas energy supplies.
As reported by S&P Global on July 15, transit of LNG through the Strait of Hormuz has declined significantly due to the attack on commercial ships. It is reported in the report that the LNG exports of QatarEnergy and ADNOC had started to recover because of an agreement made in June to ensure safety in the strait, but the current incident has reversed many of the gains.
Shipping Risks
Strait of Hormuz accounts for almost one-fifth of global oil transportation and a large portion of global LNG transportation. According to S&P Global, the moving average number of laden LNG ships in the region decreased from 0.8 cargoes per day in late June to 0.2 cargoes per day on July 15. The general number of commercial vessel transits in the strait also reduced from a wartime record of 78 to 34 on July 14, which is far lower than the average number of 135 vessels seen before the conflict.
As long as LNG cargo loadings continue in Qatar and the UAE with the help of repositioned vessels, the current limitation of LNG exports occurs because of shipping capacity limitations, not because of production. At least 1.87 million metric tonnes of LNG cargo ships are currently positioned in the Persian Gulf. S&P Global has revised its forecast and now estimates shipping limitations to persist up to November, meaning that the full LNG production will start only in December 2026. However, LNG supply shortages in 2026 have slightly decreased from 42 million to 40 million metric tonnes because of better-than-expected production in late June.
Economic Impact
For India, the fresh disruption can further increase pressure on imported energy prices, considering that inflation in the country is sensitive to commodity prices. India imports over 85 per cent of its crude oil needs and is increasingly becoming dependent on imports of LNG to cater to industrial, city gas and power needs. Any sustained rise in prices of LNG and crude oil can increase India’s trade deficit besides putting pressure on the cost of inputs for industries. Market watchers feel that geopolitics has become a structural feature of global energy markets as opposed to being just a temporary disruption.
They feel that periodic shipping disruptions in the Strait of Hormuz may continue to make energy prices volatile, thereby necessitating increased inventory of suppliers as well as diversified sourcing. Despite existing inventories and fleet positioning which might help avoid any immediate supply disruption, analysts have warned that any sustained disruption may lead to tighter supply of LNG globally, especially in the Asia-Pacific region. This would increase the level of competition among buyers in the winter season, thereby keeping spot prices high.
The broader economic trend suggests geopolitical risks are once again becoming a key driver of global energy markets. If tensions persist, businesses dependent on imported fuel, fertilisers, petrochemicals and manufacturing inputs may face higher operating costs, while policymakers could find it more challenging to balance inflation control with economic growth. |
