What Just Broke the Global Energy Market?
The latest strikes created a supply hole the market still isn’t understanding
Dear Merchants,
Israel’s strike on Iran’s South Pars gas field hit the core of Iran’s entire gas network.
South Pars, Iran’s side of the giant reservoir it shares with Qatar, produces roughly 75% of all the gas Iran uses. That gas runs power plants, factories, and home heating. Hit it hard enough, and the whole system starts to crack.
Early damage reports suggest that facilities responsible for about 12% of Iran’s total gas output were hit. That pushed an already bad gas shortage into crisis territory, and the government started floating the idea of rationing and price hikes for ordinary people.
Iran’s response was to go after Gulf energy infrastructure. Missiles and drones hit multiple sites, including Qatar’s Ras Laffan industrial complex (the biggest LNG export hub on the planet) as well as refineries and petrochemical plants in Saudi Arabia and other Gulf states.
QatarEnergy and Qatari officials called the damage at Ras Laffan ‘extensive’ and ‘significant.’ Large fires broke out; they’ve since been put out, but the repairs needed are the kind that take years, not weeks.
QatarEnergy’s CEO Saad al-Kaabi confirmed that 2 of Qatar’s 14 LNG processing trains and 1 of its 2 gas to liquids plants were hit, knocking out 12.8 million tonnes per year of LNG output for an estimated 3-5 years. In plain money terms around $20 billion a year in lost revenue, $26 billion in damaged equipment, and production at those units won’t restart while missiles are still flying.
The World’s Most Important Shipping Lane Is Now Barely Functional
On top of the physical damage, Iran has effectively shut down, or come very close to shutting down, the Strait of Hormuz. About 20 % of all the oil shipped by sea normally goes through that gap. So does a similar share of global LNG.
It’s not a formal blockade, but it functions like one. Iranian forces and US-led forces are both disrupting ships.
Tanker traffic has collapsed.
Gulf producers are trying to reroute cargo through overland pipelines to the Red Sea or the Arabian Sea, but those routes can only handle a fraction of what Hormuz normally moves.
Why South Pars and the Shared Reservoir Matter So Much?
South Pars and Qatar’s North Field are actually the same giant gas reservoir, split by an international border running through the Persian Gulf.
They’re developed separately but they’re physically 1 thing, sitting right next to the Strait of Hormuz.
For Iran, South Pars is the backbone of everything power, petrochemicals, home heating.
That’s why even partial damage causes shortages almost immediately and leads to real hardship for ordinary people.
For Qatar, the same reservoir feeds all of Ras Laffan’s output: LNG, gas to liquids products, condensates, liquid petroleum gas, naphtha, sulphur, and helium.
Ras Laffan accounts for roughly a 1/5 of all the LNG traded globally.
Packing LNG, gas processing, and petrochemical plants all into one complex makes it highly efficient. It also means one concentrated target. The Iranian strikes just showed how badly that can go wrong.
Because the reservoir is so built up on Qatar’s side and because it’s Iran’s primary gas source further attacks on wells, platforms, or underwater pipelines would damage the long term production of the field for both countries. They’re stuck with each other.
That’s partly why Qatar’s leaders expressed public shock that a ‘fellow Muslim country’ attacked its energy infrastructure. Iran, for its part, has framed its response as aimed at Israel/USA not Qatar(ExxonMobil holds 34% of Train S4 and 30% of Train S6).
Qatar Tells Its Customers It Can’t Deliver
QatarEnergy has declared force majeure, the legal way of saying ‘circumstances beyond our control prevent us from fulfilling the contract’ on its entire LNG output.
It now expects to extend that declaration on specific long term contracts to customers in India, Italy, Belgium, South Korea, and China for up to 5 years.
The 2 damaged processing trains, identified in some reports as S4 and S6, have ExxonMobil equity stakes of 34% and 30% respectively.
Shell has interests in the damaged gas to liquids plant. So the financial pain is spreading to the big international oil companies as well.
Qatar was already on track to expand capacity toward 126 million tonnes per year by 2027. Losing 12.8 mtpa for 3-5 years represents about 3% of all the LNG traded globally in a market that was already tight before any of this started. More than 80% of Qatari LNG goes to Asian buyers, so it’s Asia that feels this hardest. The shutdown also cuts exports of condensates, LPG, naphtha, sulphur, and helium, squeezing specialist markets like helium that were already tight.
How Exposed Is Each Country to Outside Energy?
Before any of this happened, the EU was importing around 57% of all the energy it uses, with oil and gas making up roughly 60 % of its total energy mix. For crude oil alone, EU data from 2022 showed import dependence at a record 97.7 % meaning Europe produces almost none of its own oil.
Japan imported about 87 % of its total primary energy in 2024 and gets roughly 90%+ of its crude from the Middle East, with about 70% of those shipments going through Hormuz. LNG covers 35% percent of Japan’s power generation, and utilities only hold 2-3 weeks of LNG in reserve , meaning a prolonged disruption becomes dangerous very fast.
South Korea is in a similar spot… roughly 70% of its crude from the Middle East, up to 30 % of its LNG from the region, and almost no domestic fossil fuel production.
India’s dependence on imported oil is around 88%.
China, despite enormous coal production and fast growing renewables, still depends heavily on imported oil and LNG. The US and Russia sit at the other extreme net exporters with real leverage.
Who Just Lost Their Main Gas Supplier?
Qatar is typically the 2nd biggest LNG exporter globally, supplying around a 1/5 of all LNG traded. Its sales are concentrated in Asia.
Qatari contracts make up a meaningful chunk of what these countries import in total: roughly 30% of China’s LNG, over 40% of India’s, 15% of South Korea’s and about 25% of Taiwan’s.
If the 17% capacity loss is spread across all customers proportionally, annual shortfalls look roughly like: China loses 3.1 million tonnes, India 1.9 million, South Korea 1.5 million, Pakistan just over 1 million.
Multiply by 3-5 years and you get a serious supply problem.
Europe’s direct exposure in volume terms is smaller Qatar supplied roughly 10 % of Europe’s LNG in recent years but that understates the risk.
Europe already lost most of its Russian pipeline gas. Fewer Qatari cargoes means more competition for everything else.
Who Comes Out Ahead?
The United States
The US has been the world’s biggest LNG exporter since around 2022, shipping roughly 11.9 billion cubic feet per day about 123 billion cubic metres per year. 8 export terminals were running at full capacity in 2024, and more are coming.
European buyers have taken more than half of US LNG in recent years.
With Qatari volumes constrained and Hormuz partly blocked, US exporters can shift cargoes toward Asia where China, India, South Korea, Japan, and Taiwan now need to cover lost Qatari supply.
US crude output hit around 13.2 million barrels per day in 2024, and crude exports set a new record above 4.1 million barrels per day. Higher global prices from the Hormuz squeeze go straight to American producers’ bottom lines.
Russia
Despite Western sanctions, Russia’s crude exports in 2025 were broadly flat at around 4.8 million barrels per day, with 80 % going to China and India. The US Treasury issued temporary waivers letting some countries (especially India) buy or expand purchases of Russian crude to help stabilise markets.
Indian refiners reportedly bought around 30 million barrels of Russian oil in a single week after one such decision.
Japan and South Korea are also coming back to Russian crude under similar carve outs.
With Middle Eastern oil harder to move, Russian grades become more attractive to price sensitive Asian buyers even with the sanctions discount.
Canada & Australia
Australia covers about 30 % of Asian LNG imports, with exports in the 50 to 55 million tonnes range going heavily to China, Japan, South Korea, and Taiwan the same countries now facing the biggest Qatari shortfalls.
Australian producers are well placed to push for better prices and longer deals.
Canada isn’t yet a serious LNG exporter but future terminals on its Pacific coast could reach Asian markets faster and more cheaply than US Gulf cargoes. Both are seen as politically reliable, which is now the most valuable thing a supplier can be.
Who Takes the Worst Hit?
Europe
Europe’s gas heavy industry was already badly damaged by the Ukrainian war price spike, which pushed spot gas prices above €300 per megawatt-hour and forced widespread shutdowns in chemicals, fertilisers, and metals.
By late 2024, EU gas consumption was still about 17% below the pre-pandemic average, and close to a million manufacturing jobs had disappeared. The current conflict has pushed gas prices up roughly 50% and oil by about 27 percent since the fighting started.
Since the EU has ruled out returning to largescale Russian gas, it’s now even more dependent on US, Norwegian, Algerian, and other non Russian suppliers at whatever price the market sets. Italy is directly exposed through long term Qatari contracts now under force majeure. Belgium’s Zeebrugge hub is weakened. That higher structural energy cost widens the gap with the US and makes it harder for European industry to compete.
Iran, Qatar and the Wider Gulf
Iran’s domestic gas system is under real stress. South Pars damage threatens to worsen shortages that were already causing winter blackouts and factory shutdowns.
Qatar faces a double blow 17 % of LNG capacity gone for years, and its reputation as reliable LNG supplier seriously damaged. Beyond the $20 billion annual revenue loss and $26 billion in damaged assets, Qatar now has to renegotiate complex contracts with long standing buyers.
Saudi Arabia and the UAE can reroute some crude through existing pipelines but analysts estimate those routes can handle only 4 to 7 million barrels per day at most, versus 20 % of global seaborne oil that normally goes through Hormuz. Insurance costs, war-risk surcharges, and the general sense that anything could happen are raising the cost of doing business in the Gulf and eroding its image as a safe place to invest.
Asian LNG and Oil Importers
Japan relies on the Middle East for roughly 95 % of its crude oil and holds only 2-3 weeks of LNG in reserve at power plants, making a prolonged disruption dangerous very fast.
South Korea has solid strategic reserves, over 200 days of crude and roughly 50 days of LNG, but officials warn a prolonged Hormuz closure could eventually force cutbacks in refining and power generation. It also has direct exposure through long term contracts with the damaged Ras Laffan trains.
China was the world’s biggest LNG importer in 2024 at 78 million tonnes, with Qatar supplying roughly 30%. Losing Qatari contracted volumes forces Chinese buyers into the spot market or deeper into Russian supply raising both cost and geopolitical reliance.
India, Pakistan, Bangladesh, and Taiwan face their own version of the same problem. Pakistan and Bangladesh are in the most fragile position: when LNG prices spiked after Russia’s 2022 invasion of Ukraine, both had rolling blackouts and factory shutdowns. A multi year Qatari shortfall at today’s prices risks something similar or worse. For all of these countries, the core problem isn’t just finding replacement volumes it’s being able to afford them.
Israel’s Pipeline Idea
Israeli Prime Minister Benjamin Netanyahu has argued publicly that the Hormuz crisis proves the case for building oil and gas pipelines from the Arabian Peninsula to Israeli ports on the Mediterranean bypassing Hormuz entirely, and largely sidestepping Suez as well for a portion of flows.
In recent remarks, he described pipelines running west across Gulf states to Israel as a way to ‘remove the choke points’ that let Iran threaten global energy supply. Similar ideas have come up before, but political resistance in Saudi Arabia and other Arab states, combined with security concerns, have always killed them off.
A post war environment in which Gulf monarchies feel betrayed by Iranian attacks on their energy and water infrastructure might change that calculation.
There is reportedly more quiet cooperation with Israel already than most of these governments are willing to acknowledge publicly.
Whether any of this ever becomes real infrastructure is another matter. The capital involved, the construction timelines, and the politics all make this a medium to long term scenario at best.
What’s clear is that the idea is being discussed seriously in ways it wasn’t before.
The strikes on Ras Laffan and South Pars have turned Middle Eastern energy chokepoints from something people worried about in theory into a real, multi-year problem for the global gas and oil market.
Unlike a ship held up for a few days, physical damage to liquefaction and processing facilities creates a supply hole that lasts as long as it takes to build new capacity elsewhere.
That timescale is years, not months. Countries with domestic hydrocarbons the US and Russia are in a better position. So are countries with strong non fossil baseload, like France’s nuclear fleet or China’ stockpiling oil at low price levels is now paying off.
Import dependent industrial economies in Europe and Asia are looking at a prolonged stretch of higher, more volatile energy costs with knock on effects for inflation, industrial competitiveness, and political stability.
The most exposed positions in The Merchant’s Portfolio and how the above is playing into each of them:
