Finanshus: Langvarig krig – og stress på oliepriser – kan løfte europæisk inflation til seks procent

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What a prolonged LNG supply shock could mean for gas prices and inflation

The outbreak of war with Iran led to the effective closure of the Strait of Hormuz. Alongside oil (see here), this is disrupting nearly 20% of global LNG trade, particularly shipments from Qatar, where the biggest LNG export facility in the world
remains shut down (with no indication when it will restart). In response, the market reacted sharply, with the TTF month-ahead gas price rising by more than 70% to 55 EUR/MWh, at the time of writing. Before the conflict, long-anticipated new LNG capacity in the US and Qatar, expected later this year, was seen as a key factor that would ease the market after several years of tight supply. However, the shutdown of LNG facilities in Qatar has reversed this expectation, bringing supply tightness back to the forefront.

Significant though this is, note that it is still only a fraction of the 1000%+ price surges we saw during the 2022-23 energy crisis. Price surge with higher short term impact Storage levels are at multi-year low European gas price developments,

• Strait of Hormuz closure disrupts 20% of global LNG trade, tightening supply and increasing competition with Asia for US cargoes. Government intervention would be needed to facilitate restocking
• Europe is better prepared than in 2022 due to LNG diversification and renewables, but prolonged disruption could still escalate pressure
• Industrial gas curtailments and fuel switching to coal or oil in pricesensitive regions like China could ease global LNG demand, partially offsetting price pressures in Europe
• Gas prices may rise to 90-130 EUR/MWh by Q4 if disruptions are prolonged, with prices rising above 180 EUR/MWh if the war persists into 2027
• Economic impact depends massively on the duration of the price shock
• Eurozone inflation could rise 1.5pp in a prolonged gas supply shock…
• …with second round effects in food and goods, and a further sustained
surge in oil prices, potentially pushing inflation above 6%

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