Asymmetric cost! Every day the Iran war continues causes months of damage to the global economy.
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Oil and gas infrastructure can be destroyed in minutes but takes years to repair. This severe mismatch on the timeline is amplifying the daily cost of the Middle East conflict into months or even years of sustained global economic damage.
CCTV News reported that on Thursday, March 19 local time, Saad al-Kaabi, CEO of Qatar Energy, stated that the LNG export facility damaged by the Iranian missile strike is expected to take three to five years to repair, with an annual export loss of about 12.8 million tons and an estimated annual revenue loss of about $20 billion.
Unlike the oil market, the LNG market has almost no strategic reserve buffer mechanism. Bernstein research director Neil Beveridge stated bluntly:
LNG has no strategic reserve.
This means that once supply suddenly drops, there is almost no buffer in the market. After the news broke, European natural gas futures rose by up to 35% that day, more than double the pre-Iran conflict level. On Friday, prices retreated slightly.
The impact of this incident has gone far beyond the energy market itself. As Bloomberg commentator Tracy Alloway pointed out, the current Middle East situation creates a "massive mismatch on the timeline," with each day the conflict continues, its impact on the global economy is measured in months.
With the reality of long-term LNG supply contraction gradually emerging, global inflationary pressure and energy market repricing are accelerating.
Qatar's wound: One blow, five years of cost
According to CCTV News, parts of the petrochemical facilities in South Pars and Asaluyeh in southern Bushehr Province, Iran, were attacked by air strikes from the U.S. and Israel. Iran then announced strikes against oil facilities connected to the U.S. in Saudi Arabia, Qatar, and other Gulf countries.
According to sources cited in the reports, the target of the Iranian missile strike was the LNG production facility in Ras Laffan Industrial City, Qatar.
According to reports, Liquefaction Trains 4 and 6 of the 14 production lines were damaged, and the status of Train 5, located between them, remains unclear. In addition, one of the two gas-to-liquids (GTL) facilities was also affected.
Saad al-Kaabi stated that the damaged capacity this time accounts for about 17% of Qatar’s total LNG exports. Qatar Energy will be forced to declare force majeure on some long-term contracts for European and Asian customers, with terms of up to five years.
Meanwhile, Qatar’s condensate exports may fall by nearly a quarter, and liquefied petroleum gas (LPG) exports may decrease by 13%.
The facility had previously been shut down due to drone attacks, but this round of attacks was larger and caused more severe damage. Saad al-Kaabi made it clear that production cannot resume until hostilities end.
JPMorgan warning: Supply gap far exceeds previous estimates
JPMorgan commodities analyst Otar Dgebuadze, in his latest report, lowered Qatar LNG’s normal capacity utilization rate from 90% to 80% and significantly raised estimates for Qatar’s losses during the summer (March to October).
If the Strait of Hormuz reopens within a month after the conflict ends, losses will reach 36 billion cubic meters, higher than the previous estimate of 25-30 billion cubic meters. Moreover, for each additional month of delay, monthly risk of loss will increase by 7 billion cubic meters.
JPMorgan assumes LNG exports will resume 30 days after the Strait of Hormuz reopens, reaching 40% utilization within two weeks and recovering to 80% within two months. 80% is expected to become the mid-term new normal upper limit for Qatar facilities.
JPMorgan also warned that the risk is downward, and actual recovery could be even slower. On this basis, JPMorgan concluded: This event further undermines previous market judgments about LNG oversupply.
Taking into account that Qatar’s new capacity trains had already experienced delays before the Middle East conflict, and that expansion plans face greater uncertainty, JPMorgan believes that long-term European gas benchmark prices have not yet fully reflected these risks.
Timeline asymmetry: Deep logic of energy shocks
Qatar’s case is just a microcosm of the broader crisis of timeline mismatch.
Bloomberg commentator Tracy Alloway noted that it takes minutes to destroy energy infrastructure, but months or even years to rebuild it. This reality means that for every extra day the Iran conflict continues, its impact on the global economy accumulates exponentially.
WallstreetCN previously mentioned that Goldman Sachs reviewed the five largest supply shocks in the past fifty years, calculating that four years after the shock, affected countries still suffered an average production loss of 42%. The main reasons are physical damage to oil fields, pipelines, ports and subsequent severe underinvestment.
Therefore, Goldman Sachs emphasized that if Iran and surrounding regions suffer substantial damage to production potential, oil prices may remain above $100 for much longer under risk scenarios than current market expectations.
Meanwhile, even the US, usually considered energy independent, finds it difficult to escape unscathed.
According to Baker Hughes data, the gap between the number of U.S. oil and gas rigs and surging oil prices is rapidly widening; soaring oil prices have not brought immediate supply responses.
According to the Financial Times, American oil and gas operators are generally unwilling to expand production blindly when prices surge, having deeply learned from the boom and bust cycles of shale oil in the 2010s. Capital discipline has become the primary constraint imposed by shareholders on management.
Pressure at the monetary policy level is also rising. Bloomberg reports that Federal Reserve Chairman Powell’s stance is becoming increasingly hawkish, and the market currently even implies a slight expectation of rate hikes for the remainder of this year.
Against a backdrop where pre-war inflation has remained above target and is trending upwards, oil price shocks have further compressed the maneuvering space for monetary policy.
The conflict enters its third week, the end is unclear, and the global energy market is already preparing to calculate a long period of costs.
Risk warning and disclaimerThe market is risky, and investments must be made cautiously. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment goals, financial situation, or needs. Users should consider whether any opinions, views or conclusions herein are suitable for their specific circumstances. Investments based on this are at your own risk. ```