Global energy equation shifts: gas giant Qatar now buying US LNG as oil hits six-month high

The Iran war, devastating attacks on Middle East energy infrastructure and extreme insecurity on commercial shipping routes have begun to transform the global energy market. Crude oil prices have jumped to their highest level in six months, while the natural gas market has seen an unprecedented twist — Qatar, one of the world's top gas exporters, is now being forced to buy liquefied natural gas (LNG) from its main rival, the United States.

Global LNG trade totals more than 400 million metric tons a year. Qatar, long at the top of gas sales, has now turned to America to meet the demand of its international buyers. On Thursday, US gas exporter Cheniere Energy signed a historic agreement with Qatar's state-owned QatarEnergy.

Under the deal, Qatar will buy 4 million metric tons of LNG a year from the United States through 2054. Prices will be set by adding a fixed fee to the Henry Hub market rate, with deliveries starting in the 2030s. QatarEnergy is also in talks to buy a further 3 million metric tons a year from another US firm, Venture Global, and is preparing to buy more American gas using a recent $3 billion Chinese loan.

At the root of the crisis is the direct hit the Iran war dealt to Qatar's production facilities. Iranian missile and air strikes on Ras Laffan, the country's main gas production centre, severely damaged two of QatarEnergy's main production lines, shutting down 17 percent of Qatar's total LNG export capacity.

Qatar's energy minister Saad Sherida al-Kaabi has said repairing the damaged infrastructure will take at least three years. Qatar is currently seeking relief under the force majeure principle of international law. With the Strait of Hormuz — one of world trade's most sensitive waterways — effectively paralysed and no alternative sea route available, Qatar is geographically blockaded.

The Middle East crisis has multiplied dependence on the US LNG sector. Since the crisis began, shares of US companies Cheniere Energy and Venture Global have risen 26 percent and 40 percent respectively. Analysts believe the huge LNG projects being built in the United States could give it sole dominance of the world gas market in the coming days.

Alongside the gas crisis, the world oil market is also on fire. Amid continued attacks on Middle East energy infrastructure and fears over tanker safety, oil prices have reached a six-month high. Brent crude rose 3.14 percent, or $3.55, to $116.72 a barrel — its highest since 29 April. US benchmark West Texas Intermediate (WTI) rose 3.8 percent to $103.27 a barrel. Over the past week Brent has gained 6 percent in total and WTI 2.3 percent.

A major driver of the oil price surge is attacks by Iran-backed Houthi rebels on Saudi Arabia. On Thursday, Saudi Aramco ordered staff to evacuate its headquarters in Dhahran. Meanwhile, an oil spill was reported from a vessel off the UAE's Umm al-Quwain coast, and on 9 October a supertanker named Gem No. 2 came under attack. The closing of pipeline valves at Libya's Hamada and Tahara oilfields has deepened the supply crunch.

Several countries have moved to release oil from strategic petroleum reserves (SPR) to manage the crisis. The US Department of Energy approved the release of 400,000 barrels from the strategic reserve to keep supplies normal at Louisiana refineries, taking US stockpiles to their lowest level since 1982. As part of a G7 decision, Germany has also moved to release diesel and crude from its national reserves.

US President Donald Trump said in a statement that while the war against Iran could be ended quickly, how the conflict will be calmed is still under consideration. In other words, uncertainty over the war's duration persists — and that uncertainty is making markets even more volatile.

Economists warn that if the Middle East conflict and the security risks in the Strait of Hormuz and Bab al-Mandeb are not resolved quickly, a long recession and record inflation could descend on the global economy. Higher energy prices will feed into transport, production and the cost of daily essentials — an added pressure for energy-import-dependent countries like Bangladesh.

All told, the old equation of the world energy market is breaking and a new one is taking shape. Exporter Qatar turning into an importer is the biggest symbol of that change. The situation in the Strait of Hormuz and the course of the Iran war will now decide how long this turbulence lasts.