“There is no chance … that we’re going to be in a Middle Eastern war for years with no end in sight,” US Vice President JD Vance previously assured.
That confidence was shaken after Israel launched air strikes against Iran on Saturday, joined by Washington, with President Donald Trump saying the US has begun major combat operations against Tehran. Several Iranian provinces have reportedly been hit.
As negotiations with Iran falter, attention is focused on the danger to oil supplies. But conflict, short or long, also threatens the region’s crucial gas industry.
During the 12-day war in June last year, Iran’s important Fajr-e Jam gas processing plant was attacked by Israel and briefly put out of action. Now, after Israeli and US air strikes on Iranian territory, attention has turned to whether Israel will conduct further attacks on Iran’s energy infrastructure. This time, there are hints Israel might strike Iran’s domestic energy industry more extensively, in an effort to weaken the regime by interrupting electricity supplies and industrial output.
Iran is not a very important player on the international gas market. It has only two significant customers. Last year, it sold 7.6 billion cubic metres to Turkey, barely 15 per cent of Turkey’s consumption. Its gas supplies to Iraq stopped in December, and restarted in limited volumes last week. But with Iranian territory now under sustained attack, exports and cross-border infrastructure face a renewed risk of disruption.
It is, though, one of the world’s top exporters of methanol, made from natural gas, meeting about a tenth of China’s needs. Methanol is an important fuel and input to chemical and plastics production. Iran is also a significant seller of the gas-based fertiliser inputs ammonia and urea, as well as polymers. Domestic industrial disruption would not go unnoticed. Markets will be watching closely for any indication that air strikes could spill over to affect petrochemicals or shipping routes.
In terms of the wider regional dangers, it is important to take lessons from the past. Before the disastrous Russo-Japanese War of 1904-1905, the Russian interior minister told the prime minister, “we need a short victorious war”.
Washington’s swift success in capturing Venezuelan President Nicolas Maduro, and Israel’s destruction of Iran’s allies Hamas and Hezbollah, might lead to overconfidence. Israel’s decision to strike Iran directly, and Washington’s entry into combat operations, mark a sharp escalation from shadow conflict to overt confrontation.
In the June war, Iran’s missiles damaged an oil refinery in Haifa. Rightly or wrongly, the Iranian leadership believes its ability to strike back was crucial in convincing Israel to agree to a ceasefire. After the latest Israeli and US strikes, Israel reported missile launches from Iran, while Tehran said it had struck a US base in Bahrain, raising fears of regional spillover.
Israel’s energy sector is now heavily dependent on gas, which it supplies to Jordan, Egypt and, indirectly, Syria. It shut down some of its offshore fields as a precaution during previous escalations. Perhaps surprisingly, Iran and its allies have not tried to attack these large and vulnerable installations before. After the latest round of strikes, Israeli authorities reportedly increased security around offshore platforms and other critical infrastructure.
Distances, air defences, the erosion of Iran’s capabilities, and the presence of the USS Gerald R Ford aircraft carrier off Israeli shores may prevent serious damage. Energy installations and shipping in the Gulf are much closer and more vulnerable. US forces across the region have moved to reinforce air and missile defences amid fears that retaliation could expand beyond Iran and Israel.
The Gulf countries – primarily Qatar, along with the UAE and Oman – produce almost a sixth of global liquefied natural gas supply. This has become even more crucial since most Russian gas supplies to Europe were cut off. Although the world gas market appears fairly comfortable, the margin of security is dangerously thin. Any sustained escalation after the Israeli and US attacks on Iran could unnerve LNG markets, which are already sensitive to geopolitical shocks.
Iran does not particularly want to widen the conflict, and the GCC has made it clear that it prefers diplomacy. The Houthi rebels in Yemen will probably resume their campaign on Red Sea shipping routes in support of Iran. However, Tehran’s reported strike on a US base in Bahrain underscores the danger that the confrontation could draw in more regional actors.
The drone and missile attack on Saudi Arabia’s crucial Abqaiq oil processing plant in September 2019 demonstrated how effective a precision strike could be. Doha was unpleasantly surprised last year to be struck, first by Iran, then Israel. The Khor Mor gasfield in the Kurdistan region of Iraq has been struck several times by Iran-backed forces, though more for internal political reasons. The precedent of successful precision attacks on energy assets heightens concern that further retaliation could affect similar sites.
After the killing of several of its key leaders last year, Tehran has decentralised its command structures and designated several layers of succession. If threatened with the destruction of its weapons, lower-level commanders may apply a “use it or lose it” logic. With major combat operations now under way, decision-making timelines on all sides may compress dangerously.
In an outright conflict, the Houthi rebels in Yemen would probably resume their campaign. Shipping giant Maersk has again started rerouting ships to avoid the Red Sea. Renewed hostilities after the Israeli and US strikes increase the likelihood of disruption to Red Sea shipping lanes.
Of course, a US attack may be precise and brief, and not lead to any immediate loss of gas supplies. But Washington’s aims are unclear, and ideas of air power bringing about regime change in Tehran or supporting street protesters are wishful thinking. With Mr Trump declaring major combat operations against Iran, US involvement is now overt and potentially open-ended. If Iran is left wounded and vengeful, or if it sinks into instability or chaos with contending factions, it could pose an unpredictable and enduring threat to regional energy operations.
The timing of this crisis for the world gas market could be worse. The northern hemisphere is coming out of a cold winter that has depleted European gas stocks. The EU is forging ahead with its plans to phase out the small remaining intake of Russian gas. Energy traders will be assessing whether the latest escalation will tighten supplies just as Europe seeks to rebuild inventories.
This year marks the real start of a long-anticipated wave of new LNG supply. As much as 53 billion cubic metres is expected to hit the market, especially from the US, as well as Canada, Qatar and others. Next year appears even stronger, as Qatar’s massive expansion hits its stride. The UAE’s new Ruwais plant should start operations in 2028. These additional volumes may cushion short-term shocks, but sustained military confrontation could still roil prices.
A short interruption of shipments, a week or two, could be accommodated. If disruption lasts longer, the LNG-dependent East Asian nations of Japan, South Korea and Taiwan are the most vulnerable. They need gas to run their power plants for summer air-conditioning, not just winter heating. Pakistan and Bangladesh are also exposed. Cairo and Amman would need more LNG urgently if Israeli supplies were halted. Any extension of hostilities beyond the initial Israeli and US strikes would amplify these vulnerabilities.
China is by far the main buyer of Qatari LNG. It does have other options – turning back to coal, or taking more Russian gas by pipeline – but politics and trade disputes mean it has given up buying American LNG, the main flexible alternative. This would encourage it to restrain Iran, but it would have only limited influence over a desperate Iranian leadership. Europe does not buy much Gulf LNG, but, lacking firm long-term contracts, it would seek spot supplies from wherever it could find them. Major consuming nations are therefore closely monitoring developments as Israeli and US operations against Iran continue and Tehran signals retaliation.
In a prolonged gas crisis, Washington might well wield its influence over Brussels and Beijing. The pressure would mount to restart Russian flows to Europe too. The current White House is inclined to break things and move on – prolonged insecurity short of full-scale war might actually suit it. For now, markets are bracing for further retaliation after Israel’s attack on Iran and the US entry into direct combat operations, a confrontation that could reshape the region’s energy geopolitics.
