Mideast War Disrupts LNG Contracts and Raises Supply Security Questions

JD Supra Trade Law

Published March 5th, 2026

Detected March 6th, 2026

Summary

The escalating conflict in the Middle East has disrupted LNG contracts, particularly due to the de facto closure of the Strait of Hormuz and attacks on Qatari facilities. This has led to record-high spot prices and is raising urgent questions about supply security and contractual performance for energy companies.

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What changed

The ongoing conflict in the Middle East has significantly impacted global energy markets, with the liquefied natural gas (LNG) sector facing severe disruptions. Attacks on shipping and port facilities, including those in Qatar, have led to the de facto closure of the Strait of Hormuz, a critical transit route for nearly a fifth of global LNG. This has caused QatarEnergy to suspend LNG production and pushed spot LNG prices to their highest levels since 2022, with significant price surges observed in both Asian and European markets.

The crisis is prompting urgent discussions regarding supply security and contractual obligations. Energy companies, particularly those with long-term LNG Sale and Purchase Agreements (SPAs), must assess the implications for price review clauses. Sellers may seek to invoke these clauses to adjust contract prices based on current market realities, while buyers may argue that the price spike is a temporary anomaly. The outcome will depend on the specific contract language and potential arbitration proceedings, highlighting the need for legal and commercial teams to review existing agreements and prepare for potential disputes.

What to do next

Review existing LNG Sale and Purchase Agreements (SPAs) for price review clauses and force majeure provisions.
Assess potential impacts of supply disruptions and elevated spot prices on contractual obligations and financial forecasts.
Monitor geopolitical developments in the Middle East and their ongoing effect on energy markets and supply chains.

Source document (simplified)

March 5, 2026

Mideast War Tests LNG Contracts

Afolarin Awosika, James Barratt Vinson & Elkins LLP + Follow Contact LinkedIn Facebook X Send Embed

The escalating conflict in the Middle East is already having a significant impact on global energy markets, and the liquefied natural gas (“LNG”) sector has been among the hardest hit. The de facto closure of the Strait of Hormuz, through which almost a fifth of global LNG typically transits, has disrupted the flow of LNG cargoes from Qatar and other Gulf producers, pushing spot prices to their highest levels since 2022.

This crisis is already raising urgent questions around supply security, contractual performance and price flexibility. We assess these issues and the general market impact that is likely to materialise in the coming weeks and months.

The Current Conflict and Response

Airstrikes by United States and Israeli forces across Iran, and retaliatory attacks on shipping and port facilities in the Gulf, have disrupted oil and gas operations across the region. Missile and drone attacks in and around the Persian Gulf caused several of the leading mutual marine insurers to cancel war risk cover for ships operating in the region, with effect from 5 March 2026. QatarEnergy—the world’s largest LNG producer—announced that it was suspending production of LNG and associated products after its facilities at Ras Laffan and Mesaieed were struck by Iranian drone attacks.

The Strait of Hormuz is now effectively commercially unnavigable for many shipowners, abruptly cutting off a significant volume of LNG from the global market. The disruption has also affected other Gulf producers, including the UAE.

Impact on Gas Prices

The consequences for pricing have been significant. In Asia, spot LNG (JKM) moved into the low‑to‑mid $20s/MMBtu on 3 March 2026, while in Europe, TTF surged above €53/MWh, with intraday prices approaching €60–€63/MWh as European buyers competed for available supplies. JKM Apr‑26 futures settlement is around $13.365/MMBtu, reflecting the lag between future and physical prices given the early days of the shock, but market participants expect these to rise and trade at a premium to Atlantic given that most Qatari and UAE production is contracted to Asian buyers.

Beyond pure supply disruption, the crisis has also injected a pervasive risk premium into energy markets; even cargoes originating outside the Gulf area are trading at elevated levels as buyers seek to lock in volumes against the possibility of further escalation.

The dramatic increase in spot prices is likely to have consequences for price review negotiations under long-term LNG sale and purchase agreements (“ SPAs ”). Most long-term LNG SPAs contain periodic price review clauses that allow either party to request an adjustment to the contract price to reflect changes in market conditions. These clauses typically permit a review every three to five years and require the requesting party to demonstrate that market conditions have materially changed since the last review.

The current environment may encourage sellers to invoke price review mechanisms, arguing that the elevation in spot prices demonstrates that existing contract prices are out of step with market realities. Conversely, buyers who locked in favourable prices during a lower-price environment will want to resist any upward adjustment and may argue that the current spike is a temporary, geopolitically driven anomaly rather than a structural shift in the market. The outcome of these disputes will turn on the precise drafting of price review clauses and, if price review negotiations escalate into disputes, how arbitral tribunals determine, among other issues, whether there has been a material change in market conditions.

Alternative Supplies

With the disruption to Qatari supplies and the commercial closure of the Strait of Hormuz, buyers will be looking to turn urgently to alternative sources of supply. The United States exported its first cargo of LNG from Louisiana in February 2016, and in the ten years since, has grown to become the world’s largest LNG exporter. The precipitous growth of the LNG export industry in the U.S. has been fuelled by a favourable investment climate, abundant natural gas supply and reserves, as well as increasing international demand.

U.S. suppliers have become increasingly attractive by offering more competitive pricing, allowing greater destination flexibility and free-on-board (FOB) terms. In light of the increased demand from the European market as it shifts away from reliance on Russian supplies, more flexible contracts on offer from U.S. suppliers have proven to be competitive alternatives to traditional long-term, destination-restricted contracts from traditional suppliers in the Gulf region. If the geopolitical conflict continues, an increase in supply to Asia is likely to be prioritised where portfolio flexibility permits.

The Duty to Mitigate and the Limits of Force Majeure

Many other suppliers of LNG in the region may, as QatarEnergy has done, choose to invoke the force majeure provisions in their contracts to suspend their delivery obligations. This leaves buyers in the unenviable position of receiving no LNG and no compensation (other than any restoration quantities expressly provided for in the SPA, depending on the circumstances), and potentially being forced to source replacement cargoes at a much higher price on the spot market, at their own expense if needed, for instance, to meet contractual obligations downstream.

However, even where a seller has a legitimate basis for invoking force majeure, it will typically be subject to a duty to mitigate the effects of the force majeure event. In practice, this means that a seller cannot simply cease deliveries and wait for the crisis to pass. It must take all reasonable steps to resume or maintain supply, which may include sourcing replacement cargoes from facilities outside the affected region, rerouting vessels via longer alternative passages, or drawing on portfolio flexibility to allocate non-Gulf volumes to affected buyers.

The scope of the duty to mitigate is likely to be heavily disputed. Typically, sellers argue that mitigation obligations should not require them to incur costs that are disproportionate to the value of the contract or to take steps that would expose them to unacceptable commercial or operational risk, whereas buyers will argue that the duty to mitigate should be interpreted broadly.

Spot Market Premiums and Contractual Obligations

Market dislocations in the past have given rise to allegations in several proceedings that some sellers prioritised spot opportunities over long‑term deliveries, raising disputes about compliance with delivery obligations, reasonable and prudent operator standards, annual contract quantities and force majeure provisions. The economics are stark, and the potential price differentials may create an incentive for a party to re‑allocate or defer contracted volumes higher-paying buyers.

This is not a hypothetical scenario. For example, Shell LNG LLC alleged that Venture Global Calcasieu Pass LLC had deliberately delayed declaring the Commercial Operation Date (“ COD ”) at its facility in order to continue selling pre-COD LNG production on the spot market, to take advantage of the spike in global LNG prices following Russia’s invasion of Ukraine. The tribunal rejected Shell’s claims in August 2025 and on 2 March 2026, the New York State Supreme Court declined to vacate that award. By contrast, BP won a partial award in October 2025 concerning COD timing, with damages pending. These disputes illustrate that when market conditions diverge sharply from the assumptions that underpin long-term pricing arrangements, the likelihood of disagreement over allocation and performance under SPAs increases.

Conclusion

The current crisis in the Gulf region is likely to expose a number of buyers (particularly in the Asian market) to critical supply risk, and have knock-on effects on the global price and supply of LNG. The many recent geopolitical shocks that have so significantly impacted the LNG industry underscore the importance of negotiating key protections into long-term LNG SPAs, from destination flexibility, price review clauses and carefully drafted force majeure clauses, which will insulate parties as much as possible from the worst financial effects of crises such as this.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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