Middle East Conflict Disrupts Asia-Pacific LNG and Power Markets, Prompting Strategic Shifts

The ongoing conflict in the Middle East has had profound implications for energy markets across the Asia-Pacific region, particularly impacting liquefied natural gas (LNG) and oil supply chains critical for power generation. Approximately 20% of global LNG and 25% of seaborne oil transit the Strait of Hormuz, a strategic chokepoint whose disruption reverberates worldwide. Qatar, supplying roughly 20% of global LNG, experienced significant setbacks when Iranian strikes on Ras Laffan in March 2026 reportedly affected about 17% of its LNG export capacity. Although gas production from Qatar’s North Field and its overland pipelines to the UAE and Oman remain operational as of mid-May 2026, full recovery of LNG export facilities is expected to take several months or longer depending on damage severity. Overland pipeline capacity is insufficient to compensate for lost seaborne LNG volumes.

While both oil and LNG markets are affected, oil importers generally benefit from greater supply diversification and liquidity, enabling easier short-term adjustments. Nonetheless, the closure of the Strait of Hormuz has driven Brent crude oil prices 40-50% above pre-conflict levels, reflecting short- and medium-term global price pressures. LNG’s lower fungibility, due to calorific value differences affecting terminal compatibility, means supply remains largely tied to long-term offtake contracts despite growth in spot trading. This dynamic has refocused attention on LNG’s geopolitical and energy security significance.

Medium- to long-term effects may prompt buyers to reconsider the trade-off between LNG price and supply security. Australian LNG, despite higher costs, offers a shorter and more predictable shipping route to South and South-East Asia, though most existing production is already contracted. Coal is anticipated to play a critical role in short-term energy security, while renewables, energy storage, and demand response mechanisms are expected to become increasingly important hedges against future disruptions.

Australia holds a unique position as one of the world’s largest LNG exporters and a key supply diversification option for Asian buyers. However, its geographic isolation and limited refining capacity expose it to refined fuel disruptions. Since March 2026, demand for Australian LNG spot cargoes surged, especially from South Korea and Japan, but existing facilities operate near full capacity, limiting export growth in the short term. Australia has strengthened bilateral energy security through joint statements and agreements with South Korea, Japan, Malaysia, Brunei, and Singapore. Additionally, the Australian Government announced a Domestic Gas Reservation Mechanism on 7 May 2026, mandating east coast LNG exporters to reserve 20% of export volumes for domestic use starting 1 July 2027.

Bangladesh, heavily reliant on LNG for power generation but with few long-term contracts, faces heightened exposure to price volatility and shipping uncertainties. This situation threatens increased power generation costs, subsidy burdens, and risks of load-shedding and industrial supply reductions. To mitigate these risks, Bangladesh has shifted to direct procurement from non-traditional suppliers such as Kazakhstan and Singapore, expanded long-term LNG contracts with Middle East and US suppliers, and explored sourcing from Africa and other regions. While these measures aim to improve medium-term supply security, near-term fiscal pressures and intermittent power shortages remain significant concerns.

India’s natural gas constitutes about 5-6% of its primary energy mix, with LNG playing a vital role in urban transport, household energy, and as feedstock for fertilisers and petrochemicals. On 9 March 2026, India’s Ministry of Petroleum and Natural Gas issued the Natural Gas (Supply Regulation) Order, 2026, establishing an allocation framework prioritizing essential sectors like fertilisers and city gas distribution to bolster food security and urban energy access. Indian policymakers are expected to further diversify crude oil supplies, expand strategic reserves, improve refinery flexibility, and accelerate renewable energy and storage development to reduce import dependence.

Indonesia’s power generation is dominated by coal, providing relative domestic energy security amid global supply shocks. As a net LNG exporter with limited domestic LNG import reliance, Indonesia has raised coal production quotas and prioritized coal availability for power generation to buffer against oil and gas price volatility. The country may benefit from increased international demand for thermal coal as gas-importing nations shift toward coal-fired generation. Concurrently, Indonesia is advancing renewable energy deployment and seeking investment in upstream oil and gas, critical minerals, and rare earth mining.

Japan depends heavily on gas-fired power, with LNG comprising 30-40% of its electricity mix sourced from Australia, Qatar, the United States, and Southeast Asia. Price volatility directly affects generation costs and tariffs. To mitigate supply risks, Japan maintains contractual diversification, trading flexibility, and strategic LNG buffer stocks. In March 2026, the Ministry of Economy, Trade and Industry suspended the 50% utilization cap on inefficient coal plants for one year to conserve LNG. Japan is also accelerating nuclear restarts, expanding renewables, and developing ammonia and hydrogen co-firing to diversify its power portfolio.

Malaysia generates about 28% of its power from natural gas, mostly domestically produced. As a major LNG exporter, Malaysia uses imports primarily to offset declining output from mature fields. Consequently, LNG imports are not central to its power system, limiting physical supply disruption risks. However, inflationary pressures from oil markets may affect Malaysia. The conflict could redirect global LNG demand toward Malaysian exports, increasing revenues but intensifying the balance between export optimization and domestic energy security.

Pakistan is highly vulnerable to Middle East LNG disruptions due to supplier concentration, with Qatar and UAE supplying roughly 99% of its LNG imports, which account for about 30% of total gas supply. The government has curtailed gas supplies and increased reliance on coal, hydropower, and nuclear generation. Strategies include load-shedding, demand-side conservation, tariff adjustments, and maximizing non-gas generation output.

The Philippines relies on natural gas for 14-21% of power generation, with coal dominant. Declining domestic gas reserves have increased LNG import dependence. The conflict exposed structural vulnerabilities, prompting the government to declare a national energy emergency in March 2026, suspend Wholesale Electricity Spot Market trading, and replace market pricing with an administered regime to stabilize consumer bills and preserve fuel inventories. These interventions highlight the market’s sensitivity to geopolitical shocks and reinforce the strategic imperative to accelerate renewable generation and transmission infrastructure development.

Singapore’s power generation is nearly 95% gas-based, with around 57% of gas imports as LNG and the remainder from piped gas from Malaysia and Indonesia. To mitigate supply risks, Singapore commissioned an LNG terminal in 2013 and is developing a second terminal to expand capacity. LNG is sourced diversely from Australia, Qatar, the United States, and Equatorial Guinea. The government plans to license 4-6GW of low-carbon, non-intermittent power imports and increase green molecule shares in generation to further diversify the power mix.

South Korea, similar to Japan, relies heavily on LNG for power generation, sourcing from Qatar, Australia, the United States, and others. The government has maintained diversified long-term contracts, pursued spot market flexibility, and leveraged nuclear power for baseload stability. In March 2026, it issued a “resource security crisis alert” contemplating LNG stockpile releases, securing alternate cargoes, and stricter fuel market supervision.

Sri Lanka’s power sector, recovering from the 2022-23 economic crisis with IMF support, remains reliant on diesel and heavy fuel oil, with hydropower and coal providing supplementary supply. LNG is not yet critical to its energy mix, though prior plans existed to develop LNG infrastructure. Rising global oil prices will increase generation costs and tariffs, exerting pressure on foreign exchange reserves during recovery.

The Middle East conflict has thus exposed vulnerabilities and prompted diverse responses across Asia-Pacific power markets. The crisis underscores LNG’s geopolitical importance and the urgent need for resilient, diversified energy strategies incorporating renewables, storage, and demand response to mitigate future disruptions.