The escalating tensions between Israel and Iran have raised serious concerns regarding potential disruptions to liquefied natural gas (LNG) supplies through the strategic Strait of Hormuz. This waterway is vital for exporting LNG from Qatar and the UAE to China, a market heavily dependent on these supplies. Recent Israeli attacks on Iranian targets, including the capital, Tehran, have caused Iran to increase its air defense readiness, with reports indicating that flights at Imam Khomeini International Airport have been suspended.
Given the history of threats from Iran to shut down the Strait amidst conflicts, market participants are anxious about the implications of these tensions. A trader from a Chinese national oil company expressed that although a full-blown war seems unlikely, any closure of the Strait would significantly impair global energy flows. The Strait of Hormuz remains a key transit point for LNG exports, with Qatar accounting for around 18.8% of global LNG exports in 2024.
In fact, recent customs data shows that China imported over 18 million metric tons of LNG from Qatar, making up 24% of its total imports. Qatar has become China’s largest LNG supplier, surpassing Australia, while the UAE’s supply of LNG to China has also seen a notable increase. According to trade sources, if the Strait of Hormuz is indeed closed, imports from alternative sources, such as Australia, may experience a surge in demand.
Although Russian LNG could present an opportunity due to these disruptions, ongoing sanctions on many Russian projects could limit this potential. Additionally, rising geopolitical tensions in the Middle East are likely to elevate international LNG and crude oil prices, affecting benchmarks such as JKM. Currently, Chinese demand for LNG is weak, and with recent disruptions, buyers may have to navigate the spot market to secure supplies.
As of June 12, the assessed price for July JKM stood at $12.758/MMBtu, with August derivatives closely following at $12.725/MMBtu. This situation underscores the fragile balance of global LNG supplies, especially amidst regional conflicts.