What is the Potential Energy Impact of the Conflict Between Israel and Hezbollah, and How it Impacts the U.S., China and the Global Energy Market

The ongoing conflict between Israel and Hezbollah, and any potential escalation into a broader regional war, could have significant implications for natural gas exports from Iran and Qatar, particularly for Crude Oil, Piped Gas and LNG exports.

The Impact on Piped Gas Exports from Iran:

Iran exports natural gas primarily through pipelines to its neighbors, such as Iraq and Turkey. However, Iran’s capacity to expand piped gas exports is already constrained by geopolitical tensions and infrastructure limitations. The Israel-Hezbollah war could exacerbate these challenges in the following ways:

If the conflict intensifies and spreads to involve Iran more directly (given its support for groups like Hamas and Hezbollah), it could lead to more sanctions or even military strikes on its energy infrastructure, hindering gas exports.

Any conflict escalation in the region could threaten pipeline infrastructure, either through direct military strikes, opposition forces or sabotage by proxy forces, particularly if U.S. or Israeli interests are seen as being attacked by Iran.

Increased diplomatic isolation or sanctions as a result of Iran’s funding and involvement in the conflict could further hinder Iran’s ability to maintain or expand gas exports to neighboring countries. This could affect existing deals, such as those with Turkey or Iraq. China will remain the main off taker to replace the volumes if they can be moved.

The risk to Iran's gas exports depends largely on potential escalations in regional tensions. While Iran exports piped gas to several countries, including Iraq, Turkey, and Armenia, any direct involvement of Iran in the conflict or broader regional destabilization could lead to disruptions. Additionally, heightened security concerns in the Persian Gulf and the Strait of Hormuz could impact shipping routes for LNG and crude oil. Iran’s customers may face interruptions if critical pipelines are damaged or if sanctions are tightened.

The Risks to LNG Exports from Qatar:

Qatar is the world’s largest exporter of liquefied natural gas (LNG), with much of its exports heading to Asia and Europe. The Israeli response to Iran’s attack on Israel could pose risks to Qatar's LNG exports.

Qatar’s location in the Gulf, bordering Iran, places it in a sensitive geopolitical position. Although Qatar maintains a more neutral stance in many conflicts, any spillover of the Israel-Hezbollah war into the broader Gulf region could disrupt shipping routes in the Persian Gulf and Strait of Hormuz, a vital chokepoint for global LNG shipping.

A full-blown conflict involving Iran could lead to attacks on commercial shipping in the Strait of Hormuz, affecting Qatar’s ability to export LNG. In 2019, similar tensions led to attacks on oil tankers in the Gulf, raising concerns about energy exports from the region.

The conflict could also drive-up global gas prices due to concerns about supply disruptions, benefiting Qatar financially in the short term as demand for LNG spikes. However, long-term instability could hurt Qatar’s reputation as a reliable supplier, pushing importers to seek more stable alternatives.

Qatar's LNG Exports:

Qatar’s support of Syria, Hezbollah, Yemen and Iran may draw them into the conflict. This can present a major global risk to the LNG supply. Although Qatar has not been directly involved in the Israel-Hezbollah conflict. However, as the conflict develops, and Iran takes a more active role this will increase risks around key shipping routes such as the Strait of Hormuz. If regional tensions escalate, there could be a higher risk for LNG shipments passing through the region, risk of logistics and stability of the region will affect cargos regardless that Qatar’s LNG exports are under long-term contracts. Additionally, This may slow Qatar’s expansion of the North Field project, which is Iran’s south field, which is anticipated to boost its LNG output by 2027. So far, Qatar processes its own gas and not Iranian gas​.

Escalating tensions in the Middle East will drive up global natural gas and oil prices, which will affect China’s energy costs. This would be particularly impactful if disruptions reduce supply from Iran. China is a major importer of both LNG and oil, they will face higher import bills and potential shortages if alternative supplies become difficult to secure.

China will deepen its energy ties with Russia, buying cargos transported by the 400 plus dark ships moving fuel, to compensate disruptions from the Middle East. This will accelerate China's push to diversify its energy mix Burning more domestic dirty Coal and Russia as part of its broader energy security strategy.

While the direct impact on Iran’s crude oil and piped gas exports would likely be more immediate due to its more precarious geopolitical position, Qatar's LNG exports could face risks if regional instability escalates. This would particularly impact LNG shipping routes through the Strait of Hormuz, a strategic passageway critical to Iran and Qatar’s export capacity. In the longer term, sustained conflict could also lead to global energy market disruptions, increasing demand for alternative suppliers and driving up prices.

The ongoing conflict between Israel, Hamas and Hezbollah could significantly impact the energy markets, particularly impacting China’s importation of sanctioned Crude Oil and LNG.