South Asia LNG demand growth derailed as Middle East conflict exposes critical supply vulnerabilities

• Bangladesh and Pakistan in 2025 imported over 70% and 99% of their LNG from Qatar respectively, leaving both countries vulnerable when the Strait of Hormuz closed 

• Emergency measures are rationing gas to downstream users, and fiscal pressure is reaching its limits due to imports of expensive spot gas as replacement  

South Asian LNG markets have absorbed one of the most severe supply shocks in the history of the global gas trade, as the war in the Middle East and the closure of the Strait of Hormuz cut off Qatari and UAE LNG flows to a region that had made itself critically dependent on them. LNG demand across South Asia, which had been projected to grow by 2.7 million tonnes (Mt), or 7%, in 2026, is now expected to decline by around 6 Mt and the outlook beyond 2026 has been materially downgraded, according to Wood Mackenzie's latest analysis. 

In 2025, nearly 90% of Qatari and UAE LNG shipments through the Strait were destined for Asia, making the region the most affected. The resulting spike in spot prices compared to contracted LNG prices caused fiscal crises and reduced gas demand by over 3 Mt in Bangladesh and approximately 1.5 Mt in both India and Pakistan. 

"The Middle East conflict has exposed the structural vulnerabilities of South Asian LNG markets in stark terms," said Johnson Quadros, Head of Gas and LNG research at Wood Mackenzie. "Countries that had diversified their supply sources and established multiple pricing mechanisms came through this crisis in far better shape than those that had not." 

Pakistan: 

Pakistan has been the most severely affected market, with 99% of its 2025 LNG imports sourced from Qatar. According to Wood Mackenzie, the Strait of Hormuz closure reduced Pakistan-bound LNG by up to 0.4 Mt per month from March to November 2026. In response, Pakistan curtailed demand, switched fuels, and released withheld domestic gas, resulting in over 2.5 Mt of gas demand destruction. The country re-entered the spot LNG market in April 2026 after a two-year absence, but high spot prices limited success. Pakistan remains liable for daily FSRU under take-or-pay charges regardless of cargo arrivals. 

Wood Mackenzie has reduced its LNG demand forecast for Pakistan to 3.7 Mt in 2027, down from 6.6 Mt in 2025. Committed LNG volumes are expected to exceed demand through 2030, while uncontracted volumes are projected to rise above 90% by the early 2030s. 

Bangladesh: 

Unable to lift domestic gas production or draw on a diversified supply portfolio, Bangladesh was forced into the spot market under the worst conditions. Gas shortages triggered prolonged power outages and drove greater reliance on coal. Petrobangla procured spot cargoes from Gunvor and Vitol for March delivery at US$23–28/mmbtu, and between March and June 2026 Bangladesh consistently paid over US$18/mmbtu on average for spot LNG, placing mounting pressure on government subsidies  

India: 

India fared relatively better by deploying a tiered demand-management strategy that kept city gas distribution unaffected while cutting supply to the fertiliser, refinery, and industrial sectors in March and April. Daily urea production rose by 12,000–15,000 tonnes, reaching record highs in May (25.19 LMT) and June (25.37 LMT), supported by government subsidies. India's tender award prices ranged from US$16.8–18.8/mmbtu between March and June 2026, rising to US$26.4/mmbtu by September. Yet tendering demand remained robust throughout. 

Governments across the region have implemented emergency measures such as gas rationing, power cuts, tariff increases, and additional budget allocations. Wood Mackenzie cautions that these responses postpone costs rather than resolve them. Governments are being stretched to fiscal limits, while end-users face compounding pressure from higher energy bills and disrupted industrial supply chains. The conflict's duration remains the key uncertainty. If hostilities continue, current policy tools will prove inadequate, forcing governments to choose between energy security and fiscal stability. Wood Mackenzie warns that these actions delay, rather than address, underlying costs. Fiscal limits are being tested, and end-users face mounting pressure from rising energy bills and disrupted supply chains.  

"Affordable LNG is essential to drive the 60% demand growth we expect through 2040, and South and Southeast Asian economies are central to that trajectory," said Quadros. "The disconnect between today's supply crisis and tomorrow's risk of oversupply creates real uncertainty for both buyers and sellers. buyers who do not act on the lessons of 2026 on diversification, on flexible pricing, on infrastructure resilience and on building trading capabilities risk facing the same vulnerabilities again, in a market that will be even larger and more interconnected."