The war in the Middle East has significantly weakened the long-held negotiating leverage of Qatar and the United Arab Emirates (UAE), two of the world's most important LNG exporters, according to industry executives who spoke with Reuters.

LNG importers across Europe and Asia are now preparing to push for improved terms in upcoming long-term supply contracts, seeking both lower prices and greater contractual flexibility from Gulf suppliers.

For years, Qatar and the UAE derived substantial bargaining power from their reputations as dependable LNG suppliers. However, the Iran war has eroded that reliability. Cargoes from the region have faced mounting difficulties transiting the Strait of Hormuz, a chokepoint through which roughly a fifth of global LNG supply normally passes, and several LNG capacity expansion projects have been stalled or delayed following direct Iranian missile strikes on infrastructure.

Since the conflict began in February, the Middle East is no longer regarded by buyers as the stable supply partner it once was. Even China, the world's largest LNG importer, is reportedly in discussions to secure long-term LNG from exporters whose shipments do not require passage through the Strait of Hormuz, as Beijing seeks to reduce its dependence on Persian Gulf gas deliveries.

European LNG buyers now believe the balance of negotiating power has shifted in their favor. Importers are expected to demand price concessions and enhanced contract flexibility — including looser destination restrictions that would allow cargo diversion to higher-value markets — driven in part by sharply rising insurance and freight costs associated with shipping gas out of the conflict-affected region.

"Anyone entering into new contracts in the Gulf region will also have to take into account potential insurance costs, which are set to increase," Nicola Monti, chief executive of Italian utility and LNG buyer Edison, told Reuters.

Edison was among the LNG buyers affected by the force majeure declaration issued by QatarEnergy during the early weeks of the Iran war.

The elevated risk surrounding Middle East LNG supply has encouraged buyers to negotiate deals at lower Brent-linked prices. According to an industry source who spoke with Reuters, Qatar and the UAE's long-term LNG contracts had been priced at 12.6%–12.7% of the Brent crude benchmark before the war. Some agreements signed after February have already seen that pricing reduced to 12.3%.

By Michael Kern for Oilprice.com