Pacific Money | Economy | South Asia

South Asia’s LNG Strategy Was Built for the Last Crisis – Not This One

Bangladesh, Pakistan, and Sri Lanka spent years signing long-term Gulf LNG contracts to avoid the volatility of spot markets. The Iran war tore those plans to shreds.

In January 2026, Pakistan had an LNG surplus. Bangladesh took delivery of its first cargo under a new 15-year QatarEnergy supply agreement. Sri Lanka, still rebuilding from its 2022 sovereign debt crisis, was managing its energy import costs with cautious optimism. 

Seven weeks later, the Strait of Hormuz was effectively closed, QatarEnergy had declared force majeure at Ras Laffan – the world’s largest LNG liquefaction facility – and all three countries were in emergency management mode. The contracts they had signed to guarantee energy security had become a trap.

South Asia’s dependence on LNG from the Persian Gulf region is now the region’s most acute economic vulnerability. In 2025, Pakistan, India, and Bangladesh purchased the largest share of their LNG from Qatar and the United Arab Emirates (UAE). Pakistan sourced more than 90 percent of its crude oil from the Persian Gulf. Bangladesh imports approximately 95 percent of its total energy needs. The ongoing Iran-Israel-U.S. war – and the resulting energy crisis – has demonstrated, with precision that no modeling exercise could have produced, the structural failure of this concentration of supply through a single maritime corridor.

South Asia’s LNG dependency was the product of deliberate policy choices made under genuine constraints. Bangladesh’s domestic gas fields, which once supplied the majority of its electricity, have been depleting for years. Pakistan came within weeks of sovereign default in 2022 when LNG spot prices spiked beyond what it could afford. Sri Lanka lost the ability to purchase fuel on international markets entirely during its foreign exchange crisis. 

2026 marks the second time in four years that South Asia’s Gulf LNG dependency has produced economic emergency. In 2022, the Russia-Ukraine war triggered a European scramble for LNG that pushed spot prices beyond what Bangladesh and Pakistan could afford. The policy lesson governments drew was to sign more long-term contracts to lock in supply and avoid spot market exposure.

For all three countries, long-term LNG contracts with Gulf suppliers represented rational responses to acute supply and affordability problems. The Gulf states offered negotiated rates and supply certainty. The South Asian governments signed.

The logic was defensible. Long-term contracts provide price stability relative to spot markets, which South Asian buyers learned to fear in 2022, when LNG spot prices spiked to $70 per million British thermal units and Bangladesh and Pakistan endured rolling blackouts as contracted suppliers diverted cargoes to higher-paying European buyers. Long-term contracts were designed to prevent exactly that. 

They did not account for the scenario now unfolding: the physical closure of the corridor through which all those contracted cargoes must travel. Amid the closure of the Strait of Hormuz, Gas Outlook predicted that Bangladesh, Pakistan, and Sri Lanka will be “hardest hit from the price fallout.”

The impact will play out differently for each country, but the problem shares a common foundation. 

Bangladesh signed a new 15-year agreement with QatarEnergy in June 2023, with deliveries beginning January 2026. QatarEnergy declared force majeure at Ras Laffan on March 4 – just seven weeks after the first cargo arrived in Bangladesh. Subsequent Iranian strikes on the facility have since knocked out approximately 17 percent of Qatar’s LNG export capacity, with QatarEnergy’s CEO telling Reuters the damage will sideline 12.8 million tonnes per year for three to five years. What initially looked like a temporary disruption has snowballed into a near-term supply gap – and Bangladesh’s contract meant nothing after Qatar’s invocations of the force majeure clause. 

Bangladesh has since closed all universities to conserve electricity, imposed fuel caps, and stationed troops at oil depots to prevent hoarding. The country is purchasing replacement LNG on the spot market at nearly three times pre-conflict prices.

Pakistan’s situation is structurally different but equally revealing. It had accumulated an LNG surplus as recently as January 2026, with terminal utilization running below minimum dispatch levels as solar energy growth had reduced gas demand. But the outbreak of war in the Gulf region simultaneously cut off new supply and created emergency domestic shortages. 

Like Bangladesh, Pakistan has taken emergency measures: suspending LNG supply to the fertilizer sector, closing schools and universities, and reducing terminal regasification rates. 

Also like Bangladesh, Pakistan is managing the emergency while holding long-term contracts it can neither fulfill nor easily exit. IEEFA research has identified a potential excess of 177 cargoes in Pakistan’s long-term LNG contract portfolio through 2032, carrying a liability of $5.6 billion or higher at current prices. 

Sri Lanka, which reintroduced fuel rationing and a four-day government work week, faces analogous constraints in a smaller economy with even thinner buffers.

In each case, long-term LNG contracts were supposed to provide certainty after the price shock of 2022. It was the right response to one vulnerability, but blind to another. Long-term contracts address price volatility. They do not address the physical closure of the route through which contracted supply must travel. The 2026 crisis is 2022’s sequel: a different failure mode, produced by the same underlying dependency.

Supply chain disruptions should throw into question South Asia’s plan to increase supplies of – and reliance on – imported LNG. Global Energy Monitor estimated that Bangladesh and Pakistan have proposed LNG import capacity expansions that would roughly double each country’s existing infrastructure – part of a combined $107 billion in potential South Asian investment in gas terminals and pipelines. 

The single greatest risk to LNG supply chains – the closure of the Strait of Hormuz – has just been demonstrated in real time. Doubling down on the same infrastructure model is a policy choice worth examining carefully.

South Asia’s long-term LNG contracts were rational responses to the energy security problem as it was understood at the time of signing – one defined by spot market volatility. But these contracts could not solve the structural vulnerability posed by geography: the concentration of an entire region’s gas supply through a single maritime chokepoint that no South Asian government controls or can protect.

There is an alternative: reducing dependency on LNG entirely, rather than trying to safeguard supplies. 

Pakistan’s solar expansion – which has meaningfully cushioned its electricity sector in the current crisis – illustrates what the alternative looks like in practice. The IEEFA calculated that every gigawatt of solar generated in Pakistan avoids approximately $3 billion in LNG import costs over 25 years. Beyond the cost savings, every gigawatt of domestic solar capacity is a gigawatt that does not rely on energy sources making it through Hormuz. 

Bangladesh, which has invested less aggressively in domestic renewables, has had considerably less cushion. The contrast between the two countries’ crisis responses is, in part, a contrast between their renewable energy investment decisions over the past five years.

The case for a transition to renewables, then, is not solely about climate change, though it carries climate implications. It is strategic. Solar panels and wind turbines do not expose treasuries to the pricing decisions of foreign state-owned energy companies. They do not require ships to transit a strait that can be closed. For South Asian governments now assessing their energy security posture in the aftermath of this crisis, that distinction is the most consequential analytical finding the current disruption has produced.

In January 2026, all three countries – Bangladesh, Pakistan, and Sri Lanka – had reason for cautious energy optimism. By March, all three were managing emergencies. That sudden shock made obvious their deep energy dependency on a single maritime corridor that none of them controls. The energy security strategies South Asian governments build in the aftermath of 2026 will determine whether the region remains exposed to the next disruption at the same scale – or begins to reduce the geographic concentration that made this one so damaging.

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In January 2026, Pakistan had an LNG surplus. Bangladesh took delivery of its first cargo under a new 15-year QatarEnergy supply agreement. Sri Lanka, still rebuilding from its 2022 sovereign debt crisis, was managing its energy import costs with cautious optimism. 

Seven weeks later, the Strait of Hormuz was effectively closed, QatarEnergy had declared force majeure at Ras Laffan – the world’s largest LNG liquefaction facility – and all three countries were in emergency management mode. The contracts they had signed to guarantee energy security had become a trap.

South Asia’s dependence on LNG from the Persian Gulf region is now the region’s most acute economic vulnerability. In 2025, Pakistan, India, and Bangladesh purchased the largest share of their LNG from Qatar and the United Arab Emirates (UAE). Pakistan sourced more than 90 percent of its crude oil from the Persian Gulf. Bangladesh imports approximately 95 percent of its total energy needs. The ongoing Iran-Israel-U.S. war – and the resulting energy crisis – has demonstrated, with precision that no modeling exercise could have produced, the structural failure of this concentration of supply through a single maritime corridor.

South Asia’s LNG dependency was the product of deliberate policy choices made under genuine constraints. Bangladesh’s domestic gas fields, which once supplied the majority of its electricity, have been depleting for years. Pakistan came within weeks of sovereign default in 2022 when LNG spot prices spiked beyond what it could afford. Sri Lanka lost the ability to purchase fuel on international markets entirely during its foreign exchange crisis. 

2026 marks the second time in four years that South Asia’s Gulf LNG dependency has produced economic emergency. In 2022, the Russia-Ukraine war triggered a European scramble for LNG that pushed spot prices beyond what Bangladesh and Pakistan could afford. The policy lesson governments drew was to sign more long-term contracts to lock in supply and avoid spot market exposure.

For all three countries, long-term LNG contracts with Gulf suppliers represented rational responses to acute supply and affordability problems. The Gulf states offered negotiated rates and supply certainty. The South Asian governments signed.

The logic was defensible. Long-term contracts provide price stability relative to spot markets, which South Asian buyers learned to fear in 2022, when LNG spot prices spiked to $70 per million British thermal units and Bangladesh and Pakistan endured rolling blackouts as contracted suppliers diverted cargoes to higher-paying European buyers. Long-term contracts were designed to prevent exactly that. 

They did not account for the scenario now unfolding: the physical closure of the corridor through which all those contracted cargoes must travel. Amid the closure of the Strait of Hormuz, Gas Outlook predicted that Bangladesh, Pakistan, and Sri Lanka will be “hardest hit from the price fallout.”

The impact will play out differently for each country, but the problem shares a common foundation. 

Bangladesh signed a new 15-year agreement with QatarEnergy in June 2023, with deliveries beginning January 2026. QatarEnergy declared force majeure at Ras Laffan on March 4 – just seven weeks after the first cargo arrived in Bangladesh. Subsequent Iranian strikes on the facility have since knocked out approximately 17 percent of Qatar’s LNG export capacity, with QatarEnergy’s CEO telling Reuters the damage will sideline 12.8 million tonnes per year for three to five years. What initially looked like a temporary disruption has snowballed into a near-term supply gap – and Bangladesh’s contract meant nothing after Qatar’s invocations of the force majeure clause. 

Bangladesh has since closed all universities to conserve electricity, imposed fuel caps, and stationed troops at oil depots to prevent hoarding. The country is purchasing replacement LNG on the spot market at nearly three times pre-conflict prices.

Pakistan’s situation is structurally different but equally revealing. It had accumulated an LNG surplus as recently as January 2026, with terminal utilization running below minimum dispatch levels as solar energy growth had reduced gas demand. But the outbreak of war in the Gulf region simultaneously cut off new supply and created emergency domestic shortages. 

Like Bangladesh, Pakistan has taken emergency measures: suspending LNG supply to the fertilizer sector, closing schools and universities, and reducing terminal regasification rates. 

Also like Bangladesh, Pakistan is managing the emergency while holding long-term contracts it can neither fulfill nor easily exit. IEEFA research has identified a potential excess of 177 cargoes in Pakistan’s long-term LNG contract portfolio through 2032, carrying a liability of $5.6 billion or higher at current prices. 

Sri Lanka, which reintroduced fuel rationing and a four-day government work week, faces analogous constraints in a smaller economy with even thinner buffers.

In each case, long-term LNG contracts were supposed to provide certainty after the price shock of 2022. It was the right response to one vulnerability, but blind to another. Long-term contracts address price volatility. They do not address the physical closure of the route through which contracted supply must travel. The 2026 crisis is 2022’s sequel: a different failure mode, produced by the same underlying dependency.

Supply chain disruptions should throw into question South Asia’s plan to increase supplies of – and reliance on – imported LNG. Global Energy Monitor estimated that Bangladesh and Pakistan have proposed LNG import capacity expansions that would roughly double each country’s existing infrastructure – part of a combined $107 billion in potential South Asian investment in gas terminals and pipelines. 

The single greatest risk to LNG supply chains – the closure of the Strait of Hormuz – has just been demonstrated in real time. Doubling down on the same infrastructure model is a policy choice worth examining carefully.

South Asia’s long-term LNG contracts were rational responses to the energy security problem as it was understood at the time of signing – one defined by spot market volatility. But these contracts could not solve the structural vulnerability posed by geography: the concentration of an entire region’s gas supply through a single maritime chokepoint that no South Asian government controls or can protect.

There is an alternative: reducing dependency on LNG entirely, rather than trying to safeguard supplies. 

Pakistan’s solar expansion – which has meaningfully cushioned its electricity sector in the current crisis – illustrates what the alternative looks like in practice. The IEEFA calculated that every gigawatt of solar generated in Pakistan avoids approximately $3 billion in LNG import costs over 25 years. Beyond the cost savings, every gigawatt of domestic solar capacity is a gigawatt that does not rely on energy sources making it through Hormuz. 

Bangladesh, which has invested less aggressively in domestic renewables, has had considerably less cushion. The contrast between the two countries’ crisis responses is, in part, a contrast between their renewable energy investment decisions over the past five years.

The case for a transition to renewables, then, is not solely about climate change, though it carries climate implications. It is strategic. Solar panels and wind turbines do not expose treasuries to the pricing decisions of foreign state-owned energy companies. They do not require ships to transit a strait that can be closed. For South Asian governments now assessing their energy security posture in the aftermath of this crisis, that distinction is the most consequential analytical finding the current disruption has produced.

In January 2026, all three countries – Bangladesh, Pakistan, and Sri Lanka – had reason for cautious energy optimism. By March, all three were managing emergencies. That sudden shock made obvious their deep energy dependency on a single maritime corridor that none of them controls. The energy security strategies South Asian governments build in the aftermath of 2026 will determine whether the region remains exposed to the next disruption at the same scale – or begins to reduce the geographic concentration that made this one so damaging.

Mezabahnur Masum is a journalist and executive editor of Dallas Barta, a Bangla-language newspaper serving the Bangladeshi diaspora in Dallas–Fort Worth. He writes features for the Dallas Observer and holds graduate degrees in Geography and Environment from the University of Dhaka and in Journalism from the University of North Texas. He is a recipient of the AEJMC Gene Burd Urban Journalism Research Award.

Bangladesh energy sector

Iran war energy crisis

Pakistan energy security

South Asia LNG imports

Sri Lanka energy crisis

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