The recent escalation of geopolitical tensions in the Middle East is reverberating across global gas and LNG markets. Strikes on key regional LNG assets, combined with disruption to shipping routes, have created a supply shock, immediate price escalations and likely far-reaching contractual obligations.

Below is an overview of the emerging impacts, their likely consequences for LNG SPAs, and the areas where market participants would be advised to start preparing mitigation strategies.

Impacts on the LNG Market

Strikes in the Middle East and the shutdown of LNG production in Qatar

Strikes on LNG facilities across Qatar (Ras Laffan and Mesaieed), the United Arab Emirates (Das Island and Ruwais), and Oman (Qalhat) have led to unprecedented disruption in supply with Qatar alone accounting for around 20% of global LNG exports. The announcement from QatarEnergy on 02 March of a complete shutdown of its LNG production and the suspension of all tanker loadings triggered an unprecedented Force Majeure declaration with the historic drop in the global supply, an unprecedented move in 30 years.

Disruption in the Strait of Hormuz and its impact on the market

Iran’s announcement of the near closure of the Strait of Hormuz has stranded more than 150 vessels, including LNG carriers. China, the world’s largest LNG importer, which sources nearly one‑third of its LNG from the region is particularly exposed to disruption of Middle East supplies.

This disruption entails:

• the removal of 1.6 to 1.8 Mt of LNG per week from the global market (estimated at ~411 Mt in 2024),
• a reduced availability of LNG carriers;
• an increase in freight and marine insurance costs;
• an elevated risk of delays for deliveries to Asia and Europe, driven by diminished trade fluidity and congestion along alternative routes.

U.S. exporters, notably Venture Global and Cheniere Energy, are accelerating production in Texas and Louisiana and accelerate the commissioning of additional capacity, while buyers (particularly in Europe and Asia) are attempting to secure supply. Traders holding U.S. LNG cargoes are also reallocating volumes toward premium markets, where price signals have strengthened relative to the U.S;

• TTF^[1] (Europe’s benchmark for LNG pricing): ~$17/MMBtu (up 50% w/w);
• JKM in Northeast Asia (Asia accounts for 80% of Qatar’s LNG exports): ~$14.6/MMBtu (up 40% w/w); and
• Henry Hub (the U.S. benchmark price): relatively stable at ~$3/MMBtu (supported by ample domestic LNG supply).

An energy crisis that remains contained (at this stage)

Although the global LNG market is tightening, but is not, at this stage, experiencing a crisis comparable to that of 2021–2022. Gas prices remain well below the peaks at the beginning of the Ukraine conflict (around 117.5 $/MMBtu in Europe).

Several structural factors have helped absorb the shock and mitigate pressure on the market and on gas prices:

• additional global supply compared with 2021–2022 (for example, the United States has added new LNG export capacity, becoming the world’s largest exporter in 2023);
• most importing countries also hold inventories sufficient to cover 2 to 3 weeks of demand. European storage levels are not particularly low, unlike in 2021;
• demand is seasonally low, with Europe exiting the winter period and Asia not yet entering the summer peak (“shoulder season”).

What scenarios for the weeks ahead?

This situation constitutes a significant shock for the gas market; however, its impact could remain contained if Qatar is able to resume production in a timely manner and if transit conditions in the Strait of Hormuz gradually normalise.

The key factors that merit close attention are:

• the duration of the Qatari shutdown;
• the return of operator confidence in safe transit through the Strait of Hormuz.

Some market commentators consider that if the closure of the Strait of Hormuz persists, or if infrastructure is durably damaged, the global gas market could face a shock exceeding that of 2022, notably because:

• there is not enough uncommitted LNG to make up for a prolonged loss of the Qatari LNG volumes;
• the global gas/LNG market is inelastic in the short term: a sharp increase in demand, and therefore in prices, cannot significantly expand supply, given current structural constraints; and in particular
• U.S. LNG producers cannot increase their production to compensate for such prolonged loss, whereas in 2022 U.S. LNG was able to absorb part of the supply imbalance resulting from the halt of Russian gas flows to Europe (albeit on the back of high gas prices).

Potential impacts on LNG Sale and Purchase Agreements (SPAs)

QatarEnergy’s Force Majeure clause: notification, potential disputes, and scope of applicability

Through the shutdown of LNG production and the suspension of loadings, QatarEnergy is invoking Force Majeure suspending contractual delivery obligations. Buyers may seek to scrutinise:

• the specific contractual definition of Force Majeure (e.g., “political events,” “war,” “inability to operate facilities”);
• the duration of the Force Majeure period, with several analysts considering that QatarEnergy may be able to resume operations in approximately three weeks; and
• the resumption date will be critical in determining the impact on the contract (some contracts may feature long-term Force Majeure that could allow contracts to be terminated after a prolonged period of Force Majeure).

Closure of the Strait of Hormuz: delays, penalty exposure, and clauses that could be invoked

Prolonged transit closure of the Strait of Hormuz could trigger several contractual implications:

• Delivery delays that could give rise to liquidated damages, trigger laycan provisions[2], and result in demurrage charges;^[3]
• Potential renegotiation of cost pass‑through provisions;
• Invocation of maritime impediment clauses, which are included in some contracts alongside Force Majeure provisions.

Increase in gas prices and potential implications for the LNG SPAs

Sustained increases in gas spot prices (ranging from up 40% to 50% depending on the region) may affect SPAs differently:

• Contracts indexed to the spot market, alone or in combination with other benchmarks or indices, will increase buyers’ cost obligations;
• Fixed‑price contracts, bring heightened risk of supplier default if the spot price exceeds the contractual price plus the replacement cost;
• Potential invocation of hardship clauses^[4], permitting a party to demand a renegotiation of the contractual terms, primarily the price, and to seek adjustments to specific obligations to re‑establish the contract’s economic equilibrium, thereby avoiding termination of the agreement.

For contracts that are still indexed on oil indices, the ongoing surge in oil prices may also have significant impact on the economic balance of the contract.

Risk of supplier non-performance (“supply failure”)

Supply failures may arise from:

• QatarEnergy markets its long‑term volumes primarily through two entities: QatarEnergy Long Term Marketing (QELM) and its trading subsidiary QET;^[5]
• The LNG supplier ADNOC in Abu Dhabi is also experiencing disruptions from its Das Island LNG facility. The current situation may also impact the development and delivery of the new LNG export project of ADNOC, Ruwais LNG.

Buyers purchasing on an FOB (“Free on Board”)^[6] basis from these suppliers are likely to be more adversely impacted than buyers operating under DES (“Delivered Ex‑Ship”)^[7] contractual arrangements.

This temporary (or prolonged) inability to deliver the contractual volumes may, depending on the terms of the contracts, trigger:

• requests for compensation for delivery shortfalls (“shortfall compensation”);
• obligations to provide replacement^[8] cargoes;
• the risk of contentious proceedings should the buyer challenge the applicability of Force Majeure.

This risk of delivery default could also extend to portfolio players holding upstream volumes sourced from Qatar:

• Portfolio players may not necessarily be able to declare Force Majeure in turn to their own customers;
• In the absence of Force Majeure, portfolio players remain bound by their downstream delivery obligations, while facing a reduced upstream portfolio;
• This may therefore result in delivery failures and contractual disputes regarding the level of compensation applicable to such delivery shortfalls (liquidated damages or the full cost of replacing the missing cargo).

Conclusion

The Middle East crisis represents a significant, though currently contained, disruption to global LNG markets. Its evolution in the coming weeks will determine whether the situation normalises or deepens into structural imbalance.

Beyond the immediate market effects, the crisis materially heightens the risk of contractual disputes under LNG SPAs. Key areas of exposure include the scope and duration of Force Majeure, obligations relating to delivery shortfalls and replacement cargoes, compensation and liquidated damages mechanisms, as well as potential hardship or price‑review claims triggered by sustained price dislocation.

In this context, parties should proactively assess their contractual positions, secure evidence relevant to potential claims or defences, and prepare for possible arbitration or litigation arising from contested interpretations of key contractual provisions.

Authors

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^[1] The values for TTF, JKM and HH reflect Day‑Ahead market assessments.

^[2] The “laycan” clause defines the time window (between two specified dates) within which a vessel must arrive at the loading port for the contract to remain valid. The laycan is the combination of the “Laydays” (the earliest date on which the vessel is permitted to present itself for loading) and the “Cancelling date” (the latest permissible date). If the vessel arrives after this date, the charterer may cancel the contract.

^[3] Demurrage charges owed by the charterer to the vessel owner when the vessel remains in port longer than anticipated for loading and/or unloading operations (referred to as “laytime”).

^[4] A hardship clause is a contractual provision intended to protect the economic equilibrium of the contract when unforeseen and exceptional events render the performance of the contract excessively burdensome or imbalanced for one of the parties. Courts and arbitral tribunals clearly distinguish hardship from a mere market risk: an event must be exceptional and not allocated under the risk‑sharing arrangements of the LNG SPA to qualify as hardship.

^[5] QELM markets the volumes originating from the production facilities at Ras Laffan and from the North Field expansion, whereas QET markets long‑term supply on a portfolio basis and through third‑party arrangements.

^[6] Such as Petronet (sourcing from QatarEnergy) and Securing Energy for Europe (sourcing from ADNOC).

^[7] For DES contracts, suppliers are required to honour their cargo commitments, either by relying on their portfolios or by securing replacement cargoes on the spot market.

^[8] “Replacement cargo obligations”: In most traditional LNG long‑term SPAs, if the seller is unable to deliver the original cargo within the agreed delivery window, it is required to use reasonable efforts to reschedule the cargo. Should such rescheduling efforts fail, the buyer may cancel the delivery, and the seller must pay damages, the amount of which depends on the buyer’s ability to obtain a replacement cargo. Specifically, if the buyer succeeds in procuring a substitute cargo, the damages payable by the seller correspond to the actual costs incurred by the buyer in securing such replacement cargo.

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