The Iran War and the near closure of the Strait of Hormuz is disrupting global oil and gas supplies, creating a major energy shock especially in Southeast Asia, leading to soaring prices, supply constraints, and economic crunches as countries grapple with shortages. With the Hormuz blockade by the United States, things could get even worse if an agreement between Washington and Tehran that secures the opening of the Strait is not reached soon although diplomatic efforts to bring the U.S.-Israeli war on Iran to an end continue.
The Strait of Hormuz is a critical maritime shipping route for global energy flows handling about 20 percent of the world’s oil trade with nearly 90 percent of crude oil destined for Asia and large portions liquified natural gas (LNG) and Liquified Petroleum Gas (LPG) imports for Asia. In the Persian Gulf, Saudi Arabia is the world’s largest net exporter of crude oil and Qatar is the third largest exporter of natural gas. Any disruption increases pressure on the Asian governments and refiners to secure alternative supplies and implement rationing measures.
Japan and South Korea remain especially highly vulnerable to the ongoing energy crisis produced by the war with Iran. South Korea turned to Kazakhstan, Oman and Saudi Arabia to secure supplies of crude oil and naphtha amid disruptions to shipping through the Strait of Hormuz. South Korea has agreed to purchase 18 million barrels of oil from Kazakhstan, which was discussed on April 8. In addition to crude oil, South Korea has secured up to 2.1 million tons of naphtha. South Korea also plans to import approximately 5 million barrels of oil and up to 1.6 million tons of naphtha from Oman. Saudi Arabia is expected to supply up to 200 million barrels of oil and at least 500,000 tons of naphtha.
Japan’s Prime Minister Sanae Takaichi said on April 10 her country will release additional oil reserves early next month. As concern grows over energy shortages caused by the crisis in the Middle East, Japan is also trying to secure oil from locations that do not ship via the Hormuz Strait. Potential new sources for imports could reportedly include Yanbu on Saudi Arabia’s Red Sea coast and the Port of Fujairah in the United Arab Emirates, the Guardian reported. Japan has also contacted suppliers in the U.S. and Malaysia, as well as countries in Central Asia, Latin America and Africa.
China, as a top importer of oil from the Middle East, faces potential refinery run cuts and logistical hurdles, especially for independent refiners. However, China is relatively more insulated due to diversified supply sources, including increased Russian oil, massive strategic stockpiles, and the rise of electric vehicles. U.S. President Donald Trump is set to arrive in Beijing in mid-May for a long-awaited summit with Chinese President Xi Jinping. This would be the first visit to China by a U.S. president in nearly 10 years.
For Southeast Asia – the Philippines, Thailand, and Indonesia – the risk of supply crises is real. As net importers, Association of Southeast Asian Nations (ASEAN) countries face soaring energy bills, localized shortages, and reduced industrial output. The upcoming ASEAN summit on May 7-8 in the Philippines is expected to focus on the regional bloc’s responses to the shocks of the Iran war. The Philippines is highly vulnerable, importing 98 percent of its crude oil from the Middle East. It declared a state of national energy emergency following the shutdown.
The Philippines had reached an agreement with Iran to allow Philippine-flagged vessels to pass through the Strait of Hormuz but will now be affected by the U.S. blockade.
Thailand relies on the Middle East for about half its energy, with approximately 40 percent of its oil and LNG imports passing through the Strait.
As a net energy importer, Indonesia faces an increased trade deficit and a higher burden on its national budget due to expanded fuel subsidies.
Vietnam imports a substantial amount of crude oil from the Middle East, especially Kuwait, (around 88 percent of imports, according to some reports), leading to high pump prices and supply disruptions. The country is experiencing sharp price increases, encouraging reduced private vehicle use, and urging companies to implement remote work. Seeking to boost energy security and reduce supply risks, Vietnam’s newly appointed president, To Lam, was set to meet Xi in China this week to deepen cooperation with Hanoi’s largest trading partner.
The Asian Development Bank said late last month a prolonged conflict in the Middle East could dampen economic growth and fuel inflation in Asia and the Pacific.
The conflict affects economies in Asia and the Pacific through higher energy prices, supply chain and trade disruptions, and tighter financial conditions. Tourism and remittances could also be impacted, the Bank said. “Prolonged energy disruptions could force economies in developing Asia and the Pacific to navigate a difficult trade-off between weaker growth and higher inflation,” said ADB Chief Economist Albert Park. “Governments should focus on containing market stress and protecting the most vulnerable, while adopting policies to improve longer-term resilience.”