LNG shutdowns and refinery halts complicate global energy outlook
(Bloomberg) – The turmoil unfolding in the Middle East is sparking the biggest disruption to oil and natural gas markets since Russia’s invasion of Ukraine in 2022. Qatar shut down the world’s largest LNG export facility, Saudi Arabia suspended operations at its biggest oil refinery and tanker traffic through the crucial Strait of Hormuz has all but halted.
And it’s only Day 3. U.S. President Donald Trump has said he intends for the bombardment of Iran to continue for the next four to five weeks. The world currently has an oversupply of oil and gas, but a prolonged conflict would reshape energy markets.
“High oil and gas prices are in principle good news for alternative technologies because they make them more competitive,” said Thijs Van de Graaf, energy fellow at the Brussels Institute for Geopolitics. “It becomes more attractive to put in place solar panels, heat pumps and other technologies that could lower reliance on gas.”
But the calculation is not straightforward, warned David Hostert, global head of economics and modeling at BloombergNEF. Higher energy prices could spark inflation, leading central banks to raise interest rates and make it more expensive to deploy clean energy, especially since the industry is so capital intensive and sensitive to borrowing costs.
That makes fossil-fuel disruption “a bit of a Rorschach test of what you want to see,” Hostert said. “If you’re an oil and gas producing country, you might say ‘Oh this is the reason why we should fall back on our domestic resources.’ And for others it might be ‘Okay, this is why we should cut dependence on fossil-fuel imports and electrify our economy with renewables.’”
For many Asian nations, losing access to shipments of oil and gas could deal serious damage to their economies. Beijing has called for an immediate ceasefire and some buyers in the region are asking suppliers outside the Middle East for early LNG deliveries to cover potential gaps in March shipments.
“Asian policymakers will look at this and be less encouraged to go down the gas route,” said Kingsmill Bond, an energy strategist at the think tank Ember in London. “The longer this conflict lasts, the higher the pressure will be to find alternative solutions.”
In countries that have plenty of coal in the ground, such as China and India, the dirtiest fossil fuel could be a quick and cheap way to replace some imported gas.
That said, many developing countries are already quickly deploying green solutions as they get cheaper and more accessible, though higher oil and gas prices could present a new hurdle. It would tighten government spending and limit funding of clean technologies that depend on subsidies to compete with dirtier alternatives, said Antony Froggatt, director for energy and climate at Transport and Environment, a think tank.
“We are highly dependent on the price of energy in terms of our overall economies and high prices do increase some of the challenges,” Froggatt said. “Because energy is the lifeblood of our economies, the more you can produce domestically, the more secure it is.”
The European Union has already seen the benefit of pivoting to renewables after Russia’s invasion of Ukraine, though it also sought alternative sources of gas which are now under threat. Between 2019 and 2024, EU countries installed enough wind and solar capacity to avoid burning 92 billion cubic meters of gas and 55 million tons of hard coal in 2024, according to Agora Energiewende.
“We’ve had tangible results,” said Frauke Thies, the think tank’s Europe director. “It was thanks to renewables that Europe wasn’t hit harder by the last energy crisis.”
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