The recent US-Israel war with Iran has exposed the world's heavy reliance on energy from the Gulf region, with far-reaching consequences for Asia and beyond. The conflict has led to a dramatic surge in oil prices, reaching over a third higher at $100 a barrel, due to air strikes on shipping and energy infrastructure, and the closure of the Strait of Hormuz, a critical waterway for global oil shipments. This crisis highlights the vulnerability of Asia, where nearly 90% of oil and gas passing through the Strait of Hormuz is destined for the region. Ordinary citizens and businesses alike depend on this energy supply for heating, transportation, and electricity generation. Southeast Asia, in particular, is highly exposed, with countries like Malaysia and Indonesia reducing their oil production and increasing imports. The region's refineries are tailored to process Middle Eastern crude oil, making it challenging to switch to alternative suppliers.
The Philippines, for instance, relies on Middle Eastern oil for around 95% of its crude oil needs, and its president has responded by implementing a four-day workweek for public workers to conserve fuel. Governments across the region are encouraging remote work and implementing fuel-saving measures, such as raising air conditioner temperatures in public offices. Southeast Asia's heavy reliance on food imports further exacerbates the situation, making food prices sensitive to rising transportation costs. Vietnam, for example, has seen diesel prices soar by nearly 60%, leading to panic-buying at petrol stations.
The impact of the energy crisis is not limited to Asia. Global petrol prices are rising, with the US experiencing a 23% increase in average petrol prices and a 30% rise in diesel prices. The UK has seen a 9% increase in diesel prices. Governments are monitoring these price fluctuations, with South Korea imposing a temporary cap on fuel prices and Japan providing subsidies to oil wholesalers. However, China, Asia's largest economy, is relatively well-positioned due to its substantial oil reserves and a significant portion of electric vehicles sold.
The Ukraine war has also had a significant impact on global gas supplies. Europe, seeking to reduce its reliance on Russian gas, has turned to Norway and the US for liquefied natural gas (LNG) supplies. While Qatar, a major exporter, has halted production due to military attacks, the EU and the UK still rely on Qatar for only around 10% and 2% of their gas, respectively. The US, however, has increased its fracking activities, making it more insulated from the gas shock. Despite this, there are constraints on US gas exports, and the process of building infrastructure is costly and time-consuming.
In conclusion, the US-Israel war with Iran and the Ukraine war have exposed the world's vulnerability to energy supply disruptions, particularly in the Gulf region. Asia, in particular, is feeling the effects, with rising fuel and food prices. Governments are implementing measures to mitigate the crisis, but the long-term implications for energy security and global economies remain a pressing concern.
