Why is the South Pars gas field so important?

On Wednesday (March 18), Israel attacked Iran’s South Pars gas field, targeting onshore refinery units and gas storage tanks in Asaluyeh as well as offshore facilities connected to the gas field.

In retaliation, Iran quickly hit back with missile and drone attacks on Saudi Arabia, the United Arab Emirates and Qatar’s main energy hub, Ras Laffan Industrial City, the largest liquified natural gas (LNG) export facility in the world.

The Ras Laffan facility encompasses nearly 300 square kilometers (116 square miles) and sustained “extensive damage,” according to QatarEnergy, the state-owned company that runs it in partnership with ExxonMobil, TotalEnergies and Shell.

It was the first time an actual fossil fuel production site had been hit since the war started on February 28. Up until this point, both the US and Israel had avoided targeting Iranian production facilities to avoid similar retaliation.

The US ‘knew nothing’ about the attack

In a sign that the US and Israel may not always be using the same playbook, President Donald Trump wrote on Truth Social that he “knew nothing about this particular attack” but said that Israel would not attack the gas field again unprovoked.

At the same time, in an attempt to contain the situation, he warned Iran that the US would “massively blow up the entirety of the South Pars Gas Field at an amount of strength and power that Iran has never seen or witnessed before,” if it attacked Qatar again. 

Both attacks marked a serious intensification of the regional war and further unsettled energy markets, as the South Pars gas deposit is critical to global supply and further escalation could be just around the corner. Following the attacks, the price for natural gas and, in particular, oil surged.

Iran: A dependence on South Pars

The Iranian South Pars gas field is part of a larger field that is divided by a maritime line in the Persian Gulf. On the other side is Qatar’s North Dome field, also called the Qatar North field. 

Together, these shared energy reservoirs make up the world’s largest natural gas field, accounting for around one-third of known reserves.

For Iran, a hit on South Pars production is mainly a domestic problem. Western sanctions limit its ability to export, so it uses most of the gas it produces at home. The remaining exports go to Iraq and Turkey.

The South Pars field accounts for around 70% of Iran’s gas production and a significant share of the country’s economy when oil is included.

Any disruption to production could reduce output, exacerbate local energy problems, and lead to further rationing and blackouts — despite the country holding the world’s second-largest proven natural gas reserves after Russia and the third-largest oil reserves.

Qatar: Global energy markets are nervous

For Qatar, a hit on the South Pars gas field and its production facilities is a global problem, since it mainly exports its gas worldwide and is the biggest supplier to Asia.

The Ras Laffan complex is responsible for roughly 20% of the global LNG trade. Overall, Qatar is the third-largest LNG exporter in the world after the US and Australia.

Stopping work at the Ras Laffan facilities would also hit helium production, which is a byproduct of LNG production and important for semiconductor production, among many other industrial uses.

Across the Middle East oil and gas output is down. A major reason is the blockade of the Strait of Hormuz that has stopped ships from carrying oil and gas out of the Persian Gulf to customers around the world.

With the waterway closed, production facilities have so far been able to function even if they were temporarily offline. But now that oil and gas facilities are being directly targeted, they could remain offline much longer due to repairs, even if the war ends and the channel reopens.

‘Oil markets remain on edge’

Repairs to damaged facilities are complex, costly and could take months or even years, resulting in less oil or gas flowing to the hungry global market.

Though Qatar could afford such repairs, Iran has suffered under years of sanctions and may be strapped for cash.

The gas field attack was significant “because it marked the first strike on their upstream facilities since the current war began,” wrote Deutsche Bank analyst Jim Reid in a note to clients early Thursday.

Oil and gas prices jumped after the attacks and “oil markets remain on edge in Asia this morning amid fears that energy infrastructure could be meaningfully damaged,” added Reid.

Other analysts agree.

“Damage to the LNG facilities means that the troubles for global gas markets aren’t just about when flows through the Strait of Hormuz resume, but how long repair work at the sites might take,” wrote ING’s Warren Patterson, head of commodities strategy, and Ewa Manthey, a commodities strategist.

As this new reality settles in, it is driving fears that could push energy prices higher.

“The move to strike Iranian energy assets is odd, given that the US administration has been trying over the last couple of weeks to ease the upward pressure on oil prices,” noted Patterson and Manthey. 

Edited by: Rob Mudge