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A full or partial closure of the Strait of Hormuz could benefit US LNG exporters in the short term but create problems down the road, analysts and industry officials tell Energy Intelligence.
The prospect of a closure, while unlikely, has risen dramatically since Iran this week vowed to retaliate for the US’ bombing of several nuclear enrichment sites. More than 20% of the world’s LNG traversed the waterway in 2024, according to Kpler data, almost entirely from Qatar and the United Arab Emirates.
“If the Strait of Hormuz were to be closed for an extended period, the impact on the global LNG market would be severe. A disruption would choke off nearly a quarter of global LNG supply overnight,” Mehdy Touil, lead LNG specialist at Calypso Commodities, told Energy Intelligence.
That would likely result in “a rush for alternative suppliers, mainly the US,” Touil said. “This scenario would particularly hurt buyers relying on the spot market. Prices would spike immediately, and many price-sensitive markets in South and Southeast Asia would struggle to absorb the cost.”
As a result, “lifters of US LNG would benefit quite a bit from higher prices,” said Jason Feer, head of business intelligence at Poten & Partners. “It’s the same as when Russia invaded Ukraine.”
‘Situation Still Volatile’
A closure of the strait would come at a time when new liquefaction capacity has yet to be fully rolled out, meaning that buyers in Europe and Asia would have to aggressively compete for spare cargoes, driving LNG prices higher in the lead up to the high-demand winter season.
QATAR, UAE COMBINED LNG EXPORTS IN 2023
Asia would be hardest hit by a Hormuz closure, with China and India being the two largest buyers of LNG from Qatar and the UAE, followed by South Korea, Taiwan and Pakistan.
Higher global prices and intense competition for LNG will particularly affect European buyers, as the bloc aims to complete the first stage of its Russian gas phaseout plan by next year. The EU has been benefiting from low demand from Asia in the first half of 2025, which has allowed it to ramp up its procurement of US LNG to refill its gas storage. But in the event of a Hormuz blockage, a spike in Asian demand would likely leave European buyers short of supplies or with a higher bill to pay for imports.
The timing is also tricky for US companies, given the impending Asia-bound LNG shipments from the 2 billion cubic foot per day LNG Canada terminal in British Columbia. “One escape valve is taking shape on Canada’s west coast, offering buyers a timely, Hormuz-free alternative,” analysts at Gelber & Associates said this week.
Assessing the Downsides
Some officials and analysts say any short-term gains for US exporters could be dwarfed by longer-range demand shrinkage. “That whole event may play against LNG, and therefore US LNG by extension, if China decides that LNG is really too risky,” an industry source told Energy Intelligence. “First, there have been the two trade wars, and now that.”
The source noted that China “is not wedded to a forever-growing gas market. They have coal, they are growing renewables, nuclear too … If they decide to limit the growth of gas in the residential and industrial sectors, then gas demand growth in China may look less promising.”
More broadly, “any substantial flare-up in gas/LNG prices hurts gas,” the source said. “It raises more question marks from buyers and countries about the extent to which they should rely on gas in the energy mix. … “There needs to be a belief that gas will be available as and when needed, at reasonable and relatively stable prices. Otherwise, it hurts gas demand around the world, which is bad for all prospective supply.”
‘Not Like the Suez’
While Iran and its proxies may have the military capability to close the transit route, the strait has never been fully blocked. And despite the tenuous recent Israel-Iran ceasefire in effect for the past week, “the danger has not passed. … This situation is still volatile,” Jonathan Bass, chairman and CEO of US-based developer Argent LNG, told Energy Intelligence.
Still, analysts and industry officials cast doubt on whether Iran would even be able to effect a closure of the strait. “Iran is not known for its Navy,” quipped Vivek Chandra, CEO of US developer Gulfstream LNG.
The industry source was also skeptical. “How will you actually do that? It’s not a canal like [the] Suez. It’s still a 30-100 kilometer wide waterway.”
Even if Iran figured out a way to do it, it would hurt its own interests and draw in other nations that depend on the waterway, the analysts said.