Middle East conflict: Energy security risks and price shocks as market volatility hits supply chains

March 25, 2026, by Melisa Cavcic

Since the ignition of the conflict between the U.S. and Israel on one side and Iran on the other, the global markets have been on tenterhooks, as fears continue to grow over the impact the hostilities will have not just on the Middle East region but also the world at large, especially in terms of economy, energy security, and global supply chains, affecting all offshore energy and maritime realms across the globe, albeit to different degrees.

Following the U.S. and Israel’s launch of a military campaign against Iran, the situation in the Middle East escalated further, with Iran’s closure of the Strait of Hormuz, QatarEnergy’s halt of LNG production and associated products at some of its assets, the firm’s declaration of force majeure to its LNG buyers, and Iran’s missile attack on at the Ras Laffan Industrial City. As a result, Qatar’s LNG export capacity was cut by 17%, causing an estimated loss of $20 billion in annual revenue.

According to Wood Mackenzie, the Middle East conflict will have a limited near-term impact on Southeast Asia power markets, but raises long-term energy security risks, as the region’s power markets are showing resilience to the ongoing situation. However, the firm claims that the crisis is reinforcing energy security as a central pillar of long-term power planning across the region, even though regulated pricing and long-term LNG contracts are expected to shield most markets from severe near-term price shocks.

WoodMac believes that the disruption is likely to accelerate a reassessment of generation strategies, while rising gas and LNG prices are expected to feed into Southeast Asian power prices through Q2 2026, with impacts remaining manageable and varying significantly across markets. With Singapore and the Philippines seen as likely to experience the earliest effects, the former’s wholesale electricity prices have increased by around 20% in the third week of March compared to pre-conflict levels, while prices in the latter are following a similar trend over the same period.

The company underlines that price caps are expected to limit the impact on end consumers in both markets. The firm’s analysis shows that regulatory mechanisms and subsidies will delay or dampen price increases elsewhere, with Thailand’s fuel tariff adjustment not expected until May, while in Peninsular Malaysia, the impact is estimated at around a 1% increase in total power bills.

On the other hand, Vietnam’s exposure is said to remain limited, with gas accounting for just 9% of its power mix, and Indonesia’s fully subsidised tariff structure anticipated to shield consumers from near-term changes. If elevated fuel prices persist, Wood Mackenzie is adamant that most Southeast Asian markets will have limited ability to switch away from gas and LNG.

Yanqi Cao, Senior Analyst of Asia Pacific Power and Renewable Research at Wood Mackenzie, commented: “While Southeast Asia is relatively insulated from immediate price shocks, the current crisis is a clear reminder of the region’s structural exposure to global fuel markets. Energy security is moving back to the top of the agenda, and this will have lasting implications for how power systems evolve in the region.”

According to the company, Vietnam and Indonesia may partially offset higher gas costs through increased coal generation and power imports, while Singapore and Thailand, where gas and LNG account for approximately 85% and 65% of generation capacity, respectively, have more limited short-term alternatives. Malaysia and the Philippines are perceived to also retain coal capacity, but plants are already operating near maximum utilization levels.

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“Southeast Asia’s power markets are relatively well insulated from immediate shocks due to existing contractual and regulatory structures. However, sustained volatility in global energy markets is likely to sharpen the region’s focus on energy security, accelerating investment in nuclear and firmed renewable capacity as alternatives to gas-fired generation,” emphasized Cao.

Wood Mackenzie highlights that the prolonged market disruption is likely to accelerate policy and investment shifts across the region, particularly in nuclear power and renewable energy. As all six markets have announced nuclear ambitions for 2030 – 2037, ranging from 1.2 GW in the Philippines to 4.0 – 6.4 GW in Vietnam, these targets are expected to face execution challenges, but heightened energy security concerns could drive renewed policy focus.

“Firmed renewables combining wind and solar with battery storage are also emerging as a more scalable near-term solution. Policy momentum is building across the region, including higher tariff caps for hybrid projects in Vietnam, battery requirements for new renewables in the Philippines, storage auctions in Malaysia, and ambitious solar-plus-storage targets in Indonesia. Singapore is also advancing plans to import up to 6 GW of low-carbon electricity by 2035,” underscored the firm.

Based on Intermodal Research, the U.S. and Israel’s joint military intervention against Iran has fundamentally reshaped expectations toward a supply-constrained market, with the outlook now heavily dictated by escalating geopolitical risk in the Middle East, as the loss of Qatari LNG volumes is interpreted as a direct supply shock for the natural gas market, since Qatar is the second-largest LNG exporter behind the United States, providing around 20% of global LNG exports, serving mainly East Asia and Subcontinent.

The latest report outlined: “This contraction in available supply has significantly tightened the global gas balance, triggering a sharp increase in benchmark prices. Given the inelastic LNG demand in the short term and heightened concerns over access to LNG sources, market participants have reacted swiftly.

“Although the market is at the threshold of the seasonal shoulder period characterized by declining heating demand before colling demand kicks in, European and Asian buyers are actively competing for flexible US LNG cargoes, rendering the spread between the JKM and TTF benchmarks key determinant of trade flows.”

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Indermodal claims that the ramp-up of U.S. LNG exports cannot replace the scale of Qatari volumes in the near term, while Australian output as the third major exporter remains largely stagnant, with other exporting regions lacking sufficient spare capacity. Given these conditions, the report indicates that importers are adapting to a structurally tighter environment.

The Indian Subcontinent is considerd to be facing the most immediate pressure due to its high dependency on Qatari volumes, whereas Europe’s vulnerability is likely to intensify later in the year, particularly as it seeks to replenish gas storage levels, which exited winter at historically low levels below 30%.

While shedding light on potential mitigation strategies, the analysis spotlights increased reliance on domestic reserves, shifts in the energy mix toward coal, and sourcing from alternative suppliers such as Russia, Nigeria, and Canada. Even though these producers are not considered to have the ability to fully offset the loss of Qatar’s LNG supply, they are expected to act as marginal suppliers, reinforcing their strategic importance in an increasingly tight market.

Intermodal claims that this backdrop has driven a sharp increase in LNG spot rates throughout March, primarily fuelled by uncertainty and supply disruptions linked to geopolitical escalation and the effective closure of Hormuz, which has also constrained exports from the United Arab Emirates (UAE). Therefore, spot earnings for a 174,000 cbm LNG carrier are seen to have surged to above $160,000 per day, approximately 5.5 times February’s average, reaching levels last observed in late 2023.

In light of this, the report notes that rates are expected to remain supported by a convergence of factors in the short run, including increased ton-mile demand as U.S. cargoes are diverted toward Asia, and regional tonnage constraints, with approximately 4% of the LNG fleet remaining in the Persian Gulf. The re-entry of QatarEnergy-controlled vessels into the spot market, with around ten units already observed, may partially offset the upward movement of rates.

“However, from a structural standpoint, should disruptions to Qatari output persist, significantly reducing available cargoes, the broader outlook turns bearish, particularly against a backdrop of oversupply in the LNG carrier market and excess tonnage weighing on fundamentals,” concluded Intermodal.

“Overall, the LNG carrier market is expected to remain volatile, driven by the intersection of geopolitical risk, logistical disruptions, and underlying supply fundamentals. A gradual rebalancing will hinge either on the full restoration of Qatari exports or on the gradual easing of the supply deficit as new liquefaction capacity comes online.”

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Tan See Leng, Singapore’s Minister for Manpower and Minister-in-charge of Energy and Science & Technology in the Ministry of Trade and Industry, recently visited Singapore LNG Corporation (SLNG) and provided his take on how the conflict in the Middle East was impacting the economy, claiming that the recent attack on Iran’s oil facilities on Kharg Island and the retaliatory attack on Ras Laffan liquefaction facility in Qatar delivered “a major hit to the global oil and gas supply chain.”

“Beyond the supplies of oil and gas, other important resources like fertiliser will be impacted too – which may have knock-on effects on the global economy. Prices have already gone up significantly We, along with the rest of the world will be negatively affected by this conflict. We are monitoring the situation closely and have kicked in our contingency plans,” added Leng.

“But if there is anything we have learnt in the past three weeks, it is that we live in an unpredictable world. In the event this conflict is prolonged or there is further serious damage to energy production capacity, we cannot rule out the possibility of fuel shortages here. Singaporeans and businesses will have to prepare and brace ourselves for more turbulence ahead. Our officers are working tirelessly to prevent this from happening.”

While responding to recent developments in the Middle East, Worley explained that the safety and wellbeing of its people remain the firm’s top priority as work continues to minimize disruptions to the company’s operations. The Middle East remains an important market for this player, representing approximately 10% of its aggregated revenue.

Dr. Sultan Al Jaber, UAE’s Minister of Industry and Advanced Technology, ADNOC’s Managing Director and Group CEO, XRG’s Executive Chairman, and Masdar Chairman, stated: “Critical energy infrastructure across our region has come under attack – including ADNOC’s. These are civilian facilities, operated by civilian engineers, sustaining economies and everyday life far beyond our region.

“This is an unjustified, unprovoked and illegal attack on a peaceful nation. But it is not just a regional issue – it is global economic warfare. Energy flows are being weaponised. The reality is simple: energy security is global economic stability. When energy systems are targeted, the consequences are felt by our teams on the front line, by communities here in the Emirates, and by households and economies around the world.

“The call from the UAE and across the globe is clear: Attacks on civilian and energy infrastructure must stop. We must de-escalate, restore stability, and ensure energy continues to flow safely to the world.”

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As the ongoing Middle East crisis drives global oil prices above $100 per barrel, the conflict is wreaking havoc on the global markets’ scene by disrupting shipping routes, causing airlines to cut flights, and escalating humanitarian needs in the region, with ripple effects popping up across all energy markets, supply chains, trade, and civilian infrastructure.

The situation is resulting in higher fuel and transport costs, which are expected to leave their mark on global consumer prices and keep impacting flights to Asia and the Middle East, with geopolitical instability having the potential to influence energy security and economic forecasts down the road.

Some believe that the current situation may be beneficial for the transition to a low-carbon and net-zero world to fill in the gap caused by potential fossil fuel shortages. However, others think that the conflict will derail the energy transition journey, as more nations may decide to go back to the higher use of coal.

Given the current landscape, well-developed trade policies and resilient supply chain planning strategies, such as regional diversification and digital monitoring, will have a key role to play in mitigating risks and tackling existing and future challenges.

With this in mind, strategic stockpiling and risk-sharing agreements could become crucial to handling the fallout. Should this conflict be prolonged, some analysts are advising the companies to prepare for a multi-year restructuring, including a shift away from the Gulf-dependent routes.

Going back to the drawing board will be needed to come to grips with higher operating costs across logistics, aviation, and manufacturing; longer lead times and potential shortages in critical goods; and the diversification of supply chains, such as alternative routes, suppliers, and energy sources.