World Economy
Apr 03, 2026
The U.S.-Israel strike campaign against Iran and the ensuing retaliation have crippled Qatar's LNG …
At the start of 2026 Pakistan was sitting on a surplus of imported liquefied natural gas (LNG). Three consecutive years of falling demand – from a peak of 8.2 million tonnes in 2021 to 6.1 million tonnes by late 2025 – were driven by cheap solar panels and reduced industrial activity.
The government responded by quietly selling excess cargoes abroad and shutting down domestic wells to avoid over‑pressurising pipelines. Any gas that could not be diverted would have been pushed into household networks at a loss, adding billions to the sector’s crippling debt.
Everything changed on 28 February when the United States and Israel launched the "Epic Fury" operation against Iran. The strikes killed Supreme Leader Ali Khamenei and targeted missile sites, air defences and military infrastructure. Iran retaliated with hundreds of missiles and drones, choking traffic through the Strait of Hormuz – a chokepoint for roughly 20 % of global oil and gas.
As part of its retaliation, Iranian drones hit Qatar’s Ras Laffan Industrial City on 2 March, the world’s largest LNG export hub. Qatar, the second‑largest LNG exporter after the United States, declared force majeure and halted all production, releasing it from contractual delivery obligations.
The fallout was immediate. Qatar’s forced shutdown cut its LNG output by 17 % and disrupted the supply chain that fuels Pakistan, which sources almost all of its imported gas from Qatar and the United Arab Emirates.
Pakistan’s LNG arrivals plummeted from 12 shipments in January to just two in March. Monthly cargo data from the Oil and Gas Regulatory Authority (OGRA) show that the country received between eight and twelve shipments a month through 2025, but only two arrived after the conflict began.
Price pressure followed. On 13 February state‑owned Pakistan State Oil and Pakistan LNG Limited bought eight cargoes at an average of $10.47 per MMBtu (totaling $257.1 million). By 12 March the two cargoes that did arrive cost $12.49 per MMBtu – a 19 % increase in just one month.
Long‑term contracts have left Pakistan with little flexibility. Two government‑to‑government agreements with Qatar, spanning 15 and 10 years, commit the country to nine shipments a month. Even as domestic demand fell – LNG’s share of Asian markets dropped from ~30 % in 2020 to ~18 % in 2025 – the contracts remained binding.
Solarisation has been a double‑edged sword. By 2025 Pakistan installed 34 GW of solar capacity, with about 25 GW feeding the national grid, driving an 11 % decline in overall electricity demand between 2022 and 2025. Gas‑fired power plants built for imported LNG are now under‑utilised, especially during daylight hours.
Analysts warn that the surplus was predictable. “Pakistan’s energy planning has been locked into long‑term contracts with little room for adjustment,” says Haneea Isaad of the Institute for Energy Economics and Financial Analysis (IEEFA). The resulting circular debt now stands at 3.3 trillion rupees (≈ $11 billion), and the government is negotiating to off‑load 177 unwanted shipments worth $5.6 billion through 2031.
With Qatar’s LNG shipments effectively halted, the country faces a potential shortfall of more than 21 % of its power generation capacity. The National Electric Power Regulatory Authority confirmed that LNG supplies are under force majeure, while coal imports from South Africa and Indonesia continue.
To mitigate the gap, Pakistan is reviving domestic gas production that had been throttled during the surplus period. Roughly 350–400 million cubic feet per day of domestic gas were previously held back for LNG imports, now being released to the grid.
Nevertheless, analysts caution that even with restored domestic gas, imported coal and hydropower, “the energy shortage may persist, especially during the peak summer months.”
Summer pressure is already building. The State of Industry Report 2025 recorded peak electricity demand of over 33,000 MW last summer, while winter demand sits around 15,000 MW, helped by solar generation of 9,000–10,000 MW daily. Furnace oil, the primary backup fuel, now costs 35 rupees per unit (≈ $0.12), more than double since the Strait of Hormuz disruption.
Consumers with grid electricity face higher bills and possible outages; industrial users reliant on gas risk production cuts; those equipped with rooftop solar and battery storage are best insulated.
“Returning to the spot market is unlikely given Pakistan’s dire financial position, and competing with wealthier nations would price the country out,” Isaad warns. “The realistic outcome may be planned load‑shedding of two to three hours daily.”