The Iran War Just Added $39 Billion to the World's LNG Bill

Liquefied natural gas, or LNG, is natural gas cooled to extremely low temperatures until it becomes a liquid. This greatly reduces its volume, allowing it to be loaded onto specialized ships and moved between countries. After arrival, it is turned back into gas for use. The source article focuses on LNG because it can move through global supply chains, but those routes can also be disrupted.

Countries import LNG when local production or pipeline supplies are insufficient, unavailable, or too risky to rely on. Buyers can use long-term contracts for planned deliveries or the spot market for cargoes needed quickly. Europe, for example, buys around 65% of its LNG on the spot market, making it highly sensitive to sudden price changes.

The current crisis shows both the value and limits of LNG. It can provide replacement supply, but buyers may pay much more when cargoes disappear. Importers therefore need diversified contracts, reliable routes, and flexibility to reduce demand.

The striking result is that global LNG importers will spend more while purchasing substantially less gas. Rystad Energy estimates at least $39 billion in additional contracted and spot-supply costs during 2026, even though imports fall by 60.7 million tonnes. Total portfolio costs are projected to reach at least $256.3 billion.

The increase comes from replacing missing Qatari and UAE cargoes with supplies bought at higher prices. Rystad’s model assumes those deliveries are unavailable from March through the end of 2026. Under that scenario, global portfolio costs rise from a pre-war estimate of $217.8 billion to $256.3 billion, an increase of about 18%.

The figures show why supply security matters alongside price management. Some buyers can use contracts or alternative routes, while others must cut demand. Europe faces at least a $12 billion increase despite demand falling by 24 million tonnes, showing how expensive replacement supply can become.

A disruption to Qatari and UAE LNG removes a large amount of planned supply from the market. Buyers then compete for replacement cargoes, especially through the spot market. That pushes prices higher. At the same time, countries that cannot afford or secure enough replacement gas cut consumption, so import volumes decline.

Rystad models Qatari and UAE deliveries as unavailable from March through the end of 2026. Europe loses 20.6 million tonnes of the 24.7 million tonnes of Qatari LNG scheduled for delivery. Its LNG bill rises by at least $12 billion, or 18%, while demand drops by 24 million tonnes. South Asia also adjusts mainly through lower imports, with Pakistan cutting purchases more sharply than India.

The effects differ by region. East Asia’s costs rise 9.7%, while the Middle East responds through demand destruction. Egypt and Brazil drive higher prices and import volumes in Africa and South America. The shock therefore produces both higher prices and lower consumption.

The Strait of Hormuz matters because it is a narrow maritime chokepoint connecting Gulf exporters with international shipping routes. Qatar and the UAE depend on seaborne routes through this area to reach many LNG buyers. If vessels cannot safely pass, cargoes may be delayed, rerouted, or become unavailable. The source identifies the strait as central to the disruption.

Rystad’s scenario assumes Qatari and UAE LNG deliveries are unavailable from March through the end of 2026. Europe is especially affected: it loses 20.6 million tonnes of the 24.7 million tonnes of Qatari LNG scheduled for delivery that year. Buyers must then seek replacement volumes at higher prices or reduce demand.

The wider lesson is that pricing diversification cannot guarantee physical supply. Importers need delivery routes that avoid maritime chokepoints or disputed waters. The article calls such supply “unchokeable” and highlights US Gulf Coast deliveries to Europe as one route that bypasses Hormuz.

Europe is more exposed because it entered the crisis already dependent on spot purchases. Spot prices can respond quickly when supply disappears, leaving buyers exposed to the full force of market volatility. Europe buys around 65% of its LNG on the spot market, while only about a quarter of its long-term contracts are tied to gas price indexes.

East Asia has a different portfolio. Spot purchases account for just 14.5% of its imports, and 82% of its long-term LNG contracts are linked to oil. Those contracts have risen about 28%, compared with 72% for contracts tied to hub and spot benchmarks. East Asia also has contracts outside the Middle East and lower LNG demand.

As a result, East Asia’s costs rise only 9.7%, the smallest relative increase among regions outside the Middle East. Europe’s average price rises 47%, and its LNG bill increases at least $12 billion. Contract structure and physical supply diversity therefore shape exposure.

When a cargo cannot pass through a disrupted route, importers need both replacement gas and a workable delivery path. They can buy alternative LNG on the spot market, activate supply from long-term contracts, seek cargoes from different origins, or reduce demand. These choices are not equally available to every economy, and replacement cargoes may cost more.

The article highlights several route options. US Gulf Coast deliveries to Europe bypass the Strait of Hormuz. Deliveries from the United States to Asia may face Panama Canal constraints or require longer voyages, so Australian and Canadian Pacific supply become important alternatives. Importers should also examine whether contracts allow flexible sourcing and what happens when promised cargoes cannot be delivered.

Expanding US liquefaction capacity could provide more Henry Hub-indexed supply and diversify exposure to gas benchmarks. But a different price index does not solve a route problem by itself. Stronger resilience requires reliable delivery routes, diversified origins, suitable contract terms, and demand that cannot easily be replaced.

An LNG importer’s cost depends on how much gas it buys at spot prices, how much is covered by long-term contracts, and which benchmark sets each contract’s price. Spot purchases offer flexibility but can become extremely expensive during shortages. Long-term contracts provide more predictable supply and pricing, though they cannot fully protect buyers if physical deliveries are disrupted.

East Asia illustrates the advantage of contract structure. Eighty-two percent of its long-term LNG contracts are oil-linked, and those prices rose about 28%. Contracts tied to hub and spot benchmarks rose 72%. Europe buys around 65% of its LNG on the spot market, while its average price rose 47%. Its limited ability to increase spot purchases further also worsens the pressure.

The article’s central warning is that pricing diversification does not guarantee physical supply. Importers must match contract volumes and duration to residual demand, diversify routes and origins, and check replacement obligations. Reliable delivery matters as much as the benchmark price.