Image source, Getty Images
The recent US and Israeli military attacks on Iran have underscored how heavily the world depends on energy resources from the Gulf region.
Following the escalation of conflict, oil prices have surged dramatically, increasing by one third to trade at nearly $100 per barrel.
This price hike is mainly due to airstrikes targeting tankers and energy infrastructure, and the closure of the Strait of Hormuz—a narrow waterway through which about 20 percent of the world’s oil is transported.
Asia Hit Hardest
The current energy crisis has impacted Asia more severely than other regions. In the past year, 90 percent of the oil and gas supplied via the Strait of Hormuz was destined for Asian countries.
Ordinary citizens are highly dependent on these energy sources to heat their homes, fuel vehicles, and generate electricity. Major industrial sectors across Asia also rely heavily on this imported energy.
Repeated disruptions in the Persian Gulf have placed Southeast Asia at the greatest risk.
Oil-producing countries like Malaysia and Indonesia have prioritized reducing production and increasing imports in recent years.
This is primarily because of the type of crude oil produced in the Middle East and the refining methods used in these Southeast Asian nations.
“Middle Eastern crude oil is usually of the ‘heavy sour’ or ‘medium sour’ type,” explained Jane Nakano, a senior researcher at the Center for Strategic and International Studies.
According to Nakano, refineries in Southeast Asia are specifically designed to process this type of crude oil, which makes switching to alternative suppliers such as the US challenging in the short term.
“Changing refining technology requires significant investment,” she noted.
This predicament is causing difficulties for many countries. For example, the Philippines imports 95 percent of its crude oil from the Middle East. Consequently, the country’s president has urged government employees to work only four days a week to conserve fuel.
Several Southeast Asian governments are encouraging citizens to work from home. Thailand’s energy minister has set office air conditioning to 26 degrees Celsius and announced other fuel-saving measures.
Southeast Asia heavily depends on food imports as well. Singapore imports 90 percent of its food, and Indonesia imports nearly all its wheat requirements.
Therefore, any rise in transportation costs will inevitably drive up food prices. Last week, jet fuel prices surged by 60 percent.
Fuel Price Controls
Vietnam is also feeling the impact: diesel prices have increased by 60 percent since the start of this month, with long queues forming at petrol stations in some cities. Bangladesh is experiencing similar conditions.
While global prices have risen steeply, increases in Asia have been comparatively moderate.
In the US, average petrol prices have climbed 23 percent over the last month and diesel by one third. The UK has seen a 9 percent increase in diesel prices.
Governments are taking note of these price escalations.
South Korea has temporarily imposed fuel price caps to shield citizens from the burden of rising costs.
Japan plans to offer subsidies to oil wholesalers, helping to manage retail price increases.
Total Energies in France announced it will limit petrol and diesel prices at its stations from Friday until the end of the month.
The UK is preparing to reconsider planned fuel tax increases scheduled for September.
China, the largest economy in Asia, has a stronger capacity to withstand the energy crisis. It holds the world’s largest strategic oil reserves, enabling it to meet demand for several months.
China has also been purchasing millions of barrels of oil from Iran—despite informal US sanctions—with tracking data showing these shipments continue at low levels.
According to Capra, a trade analysis group, floating storage in the South China Sea currently holds around 46 million barrels of Iranian crude oil.
With one-third of new vehicles sold in China being electric, the impact of rising petrol prices is likely to be limited.
China is also more self-reliant in electricity production than other Asian countries, with most electricity generated from coal markets.
Japan and South Korea have decided to release millions of barrels from their national reserves, aligning with a move announced last week by the International Energy Agency (IEA).
However, both countries remain dependent on Middle Eastern energy sources as they cut back on Russian oil and gas imports following Russia’s invasion of Ukraine in 2022.
Global Gas Crisis
Since the Ukraine war began, Europe’s efforts to reduce reliance on Russian gas have significantly influenced the sources of its gas imports. Currently, most liquefied natural gas (LNG) supplied to the European Union comes from Norway and the US.
The EU buys about 10% of its gas from Qatar, while the UK sources around 2% from there, according to Capital Economics.
However, it would be inaccurate to say European countries have become less reliant on the Gulf for gas; supply interruptions there would still impact them, said Capital’s chief economist David Oxley. Qatar Energy has halted production for weeks due to ‘military attacks’ on its infrastructure.
Oxley added that as South Asian buyers seek alternative gas supplies, global gas prices are expected to rise.
The US is an exception in this regard.
In recent years, the US has expanded gas production through fracking technology that extracts gas from underground rock formations, shielding it from external supply risks, Oxley explained.
However, he noted that building infrastructure for gas exports still requires significant time and investment.
Therefore, in the short term, the US lacks the capacity to fully compensate for supply disruptions from the Gulf region, Oxley added.
Additional reporting by Usman Chia in Singapore
Similar information can be shared through television and radio news outlets in Nepal to keep the public informed.
