The post-Hormuz cliff edge

The European natural gas market is facing a contradictory reality from prolonged closure of the Strait of Hormuz.

A months-long closure of this vital LNG export route presents asymmetric upside risk to gas markets throughout 2026, and probably well into 2027. But it is a double-edged sword.

The longer commercial traffic is disrupted, the deeper the demand destruction it will precipitate in emerging Asian markets that were supposed to soak up the wave of new LNG supply that will hit the market later this decade.

Near-term price risk is skewed to the upside, supporting a bullish 2026-27 thesis. Further out, the picture becomes far less clear. The potential for the gas narrative to shift abruptly from wartime scarcity to a regime of structural excess rises every day that Hormuz is shut. The key variables are the duration of closure and speed of normalisation.

A quick reopening and lasting diplomatic solution would dull both near-term scarcity-driven volatility and the tail risk of a macroeconomic shock, global recession and a rapid loosening in physical market balances. But hopes of that optimistic scenario materialising are rapidly fading, as both sides in the US-Iran conflict dig in for a bruising war of economic attrition.

This week’s downloadable 100-slide Chart Deck is littered with evidence that Dutch TTF, the European gas benchmark, is starting to price in a ‘whipsaw scenario’: acute physical shortage fuelling volatility into next winter and beyond, followed – at some point – by a sudden reversal of conditions that could be almost as dramatic as the war itself. Let’s dive in.