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Energy security fears increase as Middle East conflict escalates again
27/7/2026
News
As the threat of conflict rises again in the Middle East, the International Energy Agency (IEA) has again commented on the current state of fossil fuel exports and world markets, while other analysts predict likely outcomes.
On 21 July IEA Executive Director Fatih Birol said: ‘The escalation in hostilities affecting the Strait of Hormuz and energy infrastructure in the region increases security of supply concerns and uncertainty over the market outlook.’
‘Threats to the Bab-el-Mandeb Strait, which has become increasingly important as a route to bypass the Strait of Hormuz, exacerbate these concerns further,’ he added, referring to the pinch point some 30km wide at the southern end of the Red Sea between Yemen and Djibouti.
He was referring specifically to Houthi rebels in Yemen, who have threatened to blockade Saudi Arabia at Bab-el-Mandeb.
On 20 July, Jorge León, Senior Vice President and Head of Geopolitical Analysis at Rystad Energy, said: ‘While the Houthis have not yet clarified how the blockade would be enforced, their previous campaign against commercial vessels demonstrates both the capability and willingness to disrupt Red Sea shipping.’
He added: ‘The threat is particularly significant because Saudi Arabia has increased exports from Yanbu to around 4mn b/d as it seeks to bypass the Strait of Hormuz. Rystad Energy vessel-tracking data indicates that approximately 2.5mn b/d of these volumes are currently moving south through Bab-el-Mandeb.’
Shipping through the Strait of Hormuz has also slowed. The IEA estimated that Gulf exports are below highs in late June but above spring 2026 levels.
The IEA statement went on to discuss how global markets have helped cushion the blow of the closure of the Strait of Hormuz to world energy markets. Birol credited other oil exporters: the US, Brazil, Venezuela and Kazakhstan have increased production while China has cut imports by half. Emergency stocks released under collective action organised by the IEA has seen 290mn b released of the 400mn offered.
US and Canadian LNG have offset about 70% of the product locked behind the Strait, according to the IEA, which also pointed out that refined oil products (particularly diesel and gasoline) have not picked up as much as crude oil.
The IEA concluded that ‘full and unconditional’ reopening of the Strait of Hormuz ‘will be essential to avoid a further deterioration in global energy security’.
Meanwhile, market analyst Wood Mackenzie has forecast that some Asian customers of blocked Middle East oil are starting to make other plans, although the effects vary by country, depending on exposure to supply from Qatar, the UAE, spot demand and their flexibility to switch fuels.
Maoping Hu, Principal Analyst for Gas and LNG at Wood Mackenzie, said: ‘Japan and China are better insulated. South Asia is absorbing a genuine shock. But even the more resilient markets are making decisions now on nuclear, on coal, on long-term contracting diversification that will shape their LNG demand trajectories well into the next decade.’
On the subject of South Asia, Hu added: ‘India, Pakistan and Bangladesh are each navigating supply disruption in markets that remain structurally sensitive to price, and spot prices are now at levels that are translating directly into demand curtailment, industrial fuel switching and, in the most acute cases, fertiliser plant shutdowns and power sector load shedding.’
As a result, the analyst predicts 2026 demand for LNG in Asia to reach 257mn tonnes (mn t), down from 268mn t in 2025 and 278mn t in 2024. But beyond that, demand is forecast to recover to 279mn t in 2027 and 297mn t in 2028, provided new supply, spot prices materialises and new regas infrastructure comes online.
