LNG

Global oil and LNG shocks are likely to abate following a comprehensive US-Iran peace deal, but embedded inflation and second-round effects are just beginning, Fitch Rating warns. Global inflation likely peaked in the second quarter of 2026, analysts said, but knock-on effects from the initial jump in energy prices threaten to keep inflation elevated in several markets.

Tehran will reopen the Strait of Hormuz immediately after the US and Iran signed a memorandum to end the conflict in Versailles late on June 17 – earlier than planned. Oil and gas prices fell sharply on the news, and LNG benchmarks trimmed the geopolitical risk premium that has buoyed them since the conflict intensified.

Fitch Rating reckons utilities in Asia Pacific can only a absorb a “short-lived fuel-supply disruption” linked to the Iran conflict. KEPCO and KOGAS rely heavily on imported LNG, so sustained shortages persist will weigh heavy on utilities balance sheets, analysts warn.

Shell CEO Wael Sawan has expressed reluctance to spend the company’s own equity on US LNG projects, citing the availability of low-cost infrastructure funding. His remark signals a shift towards prioritising shareholder returns over equity commitment in an increasingly oversupplied global LNG market.

The US Federal Reserve’s interest rate cut has had little effect on oil and LNG prices as uncertainty about the macro-economic outlook stays high. “For commodity markets, the message is clear: monetary policy is no longer a dominant driver of price direction,” Rystad analysts commented.

Venture Global is advancing talks to ship more LNG cargoes from its Plaquemines terminal in Louisiana to Ukraine’s largest private energy company DTEK, as the war-torn country scrambles to secure energy this winter. Delivered gas could cost a premium to spot LNG imports into northern Europe.  

Escalating tensions between Israel and Iran have pushed up crude oil prices to nearly $75 per barrel. The geopolitical risk premium has soared to around $8 per barrel, impacting oil-indexed natural gas contracts as well as term LNG deliveries.

The outlook hinges on Iran’s response. If the regime in Teheran keeps airstrikes focussed on Israeli military sites, as seen in past episodes, price increases may remain contained and temporary, Rystad analysts reckon. But if Iran escalates by disrupting crude oil and LNG shipments through the Strait of Hormuz, or attacks regional energy infrastructure, prices could go through the roof.

In an undisguised threat, US President Donald Trump warned the Iranian regime to stay clear on attacking American military bases in the Middle East, or face dire consequences. 

Nautical chokepoint

The Strait of Hormuz – a key nautical route between the Mediterranean and the Red Sea – is the chokepoint in this scenario. Around 12 million barrels per day of crude oil pass through the strait, over 80% of it bound for Asia. Additionally, over 3.5 billion cubic feet (bfc) of natural gas, or 18% of world shipments, travel through the strait onboard of LNG tankers.

Though there is a pipeline to bypass the Strait of Hormuz, the capacity of that pipeline is limited. Saudi Arabia’s East-West oil pipeline and the UAE’s Habshan-Fujairah oil pipeline together can handle around half of the flow. As for natural gas, the Abqaiq-Yanbu pipeline runs parallel to the East-West Petroline in Saudi Arabia, bypassing the Strait of Hormuz. Its capacity is 290,000 barrels per day, carrying primarily gas liquids.

To date, Iran never succeeded in blocking the Strait of Hormuz which is jointly controlled with Oman. Past tactics included seizing or harassing tankers by jamming their GPS signals to draw them into Iranian waters.

“If Iran were to attempt a full-scale blockade of the Strait, it would likely face strong international pushback,” Rystad head of geopolitical analysis Jorge León warns. Retaliatory actions are to be expected particularly from countries of the Gulf Cooperation Counci, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Even Iran’s key ally, China, would be hit hard by higher oil and LNG prices, he underlined, stressing such a move would isolate Iran politically and economically.

Beware shipping rates

Peter Sand, Xeneta chief analyst takes a similar view: “Any closure of the Strait of Hormuz would see services re-routed, with increased reliance on India West Coast ports for connecting the Far East to Indian sub-continent,” he noted. The inevitable disruption and port congestion, as well as the potential for higher oil prices, would cause a spike in ocean freight container and LNG shipping rates.

Average spot rates from Far East to North Europe are up 62% since early December 2023, just before escalation in the Red Sea, while average spot rates to US East Coast – another trade that would ordinarily transit the Suez Canal – are up a staggering 165%, analysts pointed out.

LNG demand growth east of Suez is expected to exceed regionals supply, so Asian buyers are looking to pull some flexible Atlantic cargoes to balance. Energy Aspects is bullish against JKM-TTF spreads over the balance of 2025, though call on cross-basin is lower this year as contractual term cover in the top five Asian markets – China, Japan, South Korea, Taiwan and India – has fallen to 82% in 2025.