Strait of Hormuz closure severely damages global gas market – study
A prolonged closure of the Strait of Hormuz could lead to “large falls” in LNG supply to Europe, China, South Asia and Japan, Korea and Taiwan, the Oxford Institute of Energy Studies (Oxford) says.
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The UAE and Qatar together account for around one-fifth of the world’s total liquefied natural gas (LNG) supply, Oxford reports.
Nearly 80% of their combined exports go to Asian markets through the strait, while the rest is shipped to Europe, according to the report.
Although a prolonged closure of the Strait of Hormuz remains unlikely now, despite repeated threats from Iran, any disruption could have serious consequences for the global gas market, Oxford’s study finds.
“Europe would be disproportionately affected in volume terms, with Europe losing LNG to the Asian markets,” the research institute notes.
According to another report by the US Energy Information Administration (EIA), about 84% of the crude oil and 83% of the LNG that moved through the strait last year went to Asian markets. China, India, Japan and South Korea were the top buyers of the oil and LNG moving through the strait.
Any disruption in the region could see gas demand in Europe, China, and India decline sharply, “with Europe and China also facing an inability to refill storage,” Oxford notes.
Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. It is deemed as one of the world’s most important oil and LNG chokepoints.
The loss of Middle Eastern LNG could trigger a price shock at par with the surge seen in 2022 after Russia’s invasion of Ukraine, “with European and Asian spot and hub prices approaching $30 per MMBTU,” Oxford estimates.
“Today is day 580 of the Red Sea crisis, and current events suggest that this will now continue for a while longer,” Lars Jensen, chief executive of Vespucci Maritime, notes.
By Aparupa Mazumder
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