The likelihood that the world could face a new energy shock is increasing as tensions escalate due to the ongoing military confrontation between Iran on one side and Israel and the United States on the other. As events unfold, oil and gas producers in the region have been forced to reduce production and declare force majeure at several production facilities. These disruptions are largely due to persistent logistical challenges in exporting crude oil and natural gas, especially following the closure of the Strait of Hormuz.
Asian countries are among the most vulnerable consumers in the event of a regional energy crisis, as many nations across the continent rely heavily on the Middle East for a significant share of their oil and liquefied natural gas (LNG) imports.
In response, Asian governments have taken precautionary measures to address the growing energy crisis. These actions include placing strategic oil and gas reserves at the disposal of authorities if needed, while also considering purchasing additional shipments from alternative suppliers through the spot market. Some countries, such as Taiwan, have not ruled out the possibility of relying on coal to stabilize domestic electricity grids.
This emerging crisis is likely to provide important lessons for Asian consumers regarding the need to accelerate domestic energy transition programs and diversify oil and gas suppliers. Such steps would help secure future energy supplies for domestic markets and improve market stability during times of crisis.
A Major Dilemma
Over the past decade, oil and natural gas market dynamics have become increasingly influenced by geopolitical risks emerging in different parts of the world, rather than by supply and demand fundamentals alone.
The world—particularly Europe—experienced a sudden energy shock following the outbreak of the Russia–Ukraine war in February 2022. That conflict reshaped global energy trade flows. Today, the world may be approaching another severe energy crisis due to escalating developments in the Middle East following the military confrontation between Iran and the United States and Israel that began on February 28.
This crisis could be even more severe than previous ones and may have deeper consequences for global economies as well as industrial and agricultural supply chains—especially if the closure of the Strait of Hormuz persists. In such a scenario, major consumption markets worldwide, particularly in Asia, could face significant shortages in oil and natural gas supplies that would be difficult to fully replace through alternative suppliers.
Recent tensions have already forced oil and gas producers in the Middle East to reduce production, while crude exports have been hindered by difficulties in navigating the Strait of Hormuz.
If export flows through the strait remain disrupted, global energy prices could surge sharply. Brent crude prices could exceed $100 per barrel for several weeks, while LNG prices in the Asian spot market could reach around $25 per million British thermal units—representing an increase of approximately 130% compared with pre-war levels, according to estimates from Goldman Sachs.
Asian countries are particularly vulnerable to prolonged supply disruptions from the Middle East. Each year, Asian nations import between 30% and 95% of their oil from the region, along with between 10% and 57% of their LNG imports. Any significant reduction in these supplies could weaken economic activity and financial markets across the continent.
Response Options
Asian governments have implemented several immediate measures to deal with the escalating energy crisis triggered by rising tensions in the Middle East. Key responses include:
1. Managing Domestic Supply
Governments across Asia—including China, India, Thailand, and South Korea—have moved quickly to reassure markets that strategic reserves of oil and natural gas are available to meet domestic consumption for periods ranging from one month to a full year.
For example, Japan has announced that its strategic oil reserves are sufficient to meet domestic demand for 254 days, even if all oil imports from the Middle East to Japanese refineries were completely disrupted.
China appears to be in a stronger position than many other Asian consumers. Chinese government facilities and private refineries held approximately 1.39 billion barrels of oil reserves as of March 2, according to Kpler. These reserves are sufficient to cover about 220 days of crude consumption based on 2025 demand levels.
Additionally, reports indicate that around 42 million barrels of Iranian crude oil were stored aboard tankers near Asian coastlines in late January, which Beijing could potentially draw upon to mitigate disruptions in Iranian oil flows.
Other measures aimed at strengthening domestic energy security include prioritizing local markets for domestically produced oil, natural gas, and refined fuels rather than exporting them. Countries such as China, Vietnam, and Indonesia have already adopted this strategy, and other nations may follow suit to protect domestic energy supplies.
2. Seeking Alternative Suppliers
Many Asian countries are preparing to compensate for disruptions in Middle Eastern energy supplies by purchasing oil and gas shipments from the global spot market. However, this strategy will come at a significant cost due to both soaring prices and fierce competition among Asian buyers for limited supplies.
Indonesia, for instance, has considered importing U.S. crude oil to offset potential domestic shortages.
India is also moving toward increasing imports of Russian oil after receiving a temporary waiver from the United States allowing such purchases until April 4. This exemption is expected to help stabilize India’s domestic energy market, particularly after Russian oil imports had begun declining since January due to U.S. pressure to limit energy trade with Moscow.
Regarding LNG flows, countries such as Japan, Taiwan, Bangladesh, and Pakistan are considering purchasing additional spot cargoes if the conflict continues for an extended period. South Korea has also explored coordinating with suppliers like the United States and Australia to accelerate delivery schedules or adjust shipping timelines with neighboring markets.
Overall, the crisis could benefit oil and LNG producers outside the Middle East by giving them an opportunity to expand their presence in fast-growing Asian markets. U.S. companies such as Venture Global and Cheniere Energy are already preparing to increase LNG production at facilities in Texas and Louisiana to supply more cargoes to Asia.
These developments may also open new opportunities for Russian LNG companies in emerging Asian markets such as India, Thailand, and the Philippines.
3. Shifting to Alternative Energy Sources
Following the outbreak of the Russia–Ukraine war in 2022, coal temporarily re-emerged as a solution for European countries struggling to maintain electricity generation and heating services.
A similar pattern may occur in Asia. The current energy crisis could encourage several Asian governments to rely more heavily on existing coal infrastructure in the short and medium term—even if doing so conflicts with their climate and environmental commitments.
In reality, coal already occupies a central role in Asia’s energy mix. In 2024, coal accounted for 49.2% of total energy consumption in the Asia-Pacific region. Many Asian countries rely heavily on coal for electricity generation, including China, where coal accounted for 57.7% of power generation in 2024, and India, where the figure reached 74.7%.
To prevent worsening domestic energy shortages, Taiwan has even suggested that coal could be used as a last resort to avoid factory shutdowns or electricity shortages. Other countries could adopt similar measures, potentially delaying plans to phase out coal and extending its use for longer periods.
4. Managing Energy Demand
Another possible response involves reducing electricity consumption, shifting electricity loads, and lowering refinery operating rates in order to manage energy demand during the crisis.
Some gas distribution companies in Asia have already begun reducing supply to certain industrial sectors in countries such as India and Pakistan in anticipation of declining imports from the Middle East.
Asian refineries—many of which rely heavily on Middle Eastern crude—may also reduce production by between 5% and 20%, according to preliminary estimates.
At the same time, governments in Japan, South Korea, and Malaysia are preparing preventive measures to protect consumers from the impact of rising energy prices. These measures may include subsidies for households, price caps on fuel, and easing restrictions on energy imports.
However, if global oil and gas prices remain high for an extended period, many Asian countries with limited fiscal capacity may struggle to sustain long-term energy subsidies.
As a result, some governments are already adjusting domestic fuel pricing. India recently increased liquefied petroleum gas (LPG) prices by 7%, while Pakistan raised prices for high-grade gasoline and diesel by 20.6% and 19.5% respectively. Singapore has also warned that electricity prices could rise significantly if fuel costs remain elevated.
Lessons for the Future
The current energy crisis offers important lessons for Asian countries seeking to strengthen long-term energy security.
The risk of supply disruptions and price volatility highlights the importance of expanding clean energy capacity and investing in energy storage technologies to diversify domestic energy supplies. At the same time, governments may delay plans to rapidly phase out coal in order to maintain additional reserve generation capacity during crises.
Diversifying oil and natural gas suppliers is also likely to become a top strategic priority for Asian countries in the coming years. A broader supplier base could help reduce vulnerability to future disruptions and stabilize domestic energy markets.
The crisis may also encourage Asian governments to develop new forms of international cooperation in energy trade. This could include expanding cross-border electricity interconnections, strengthening regional oil and gas pipeline networks, and building new logistical links with producers outside the Middle East.
Conclusion
In conclusion, rising geopolitical tensions are reshaping the global energy landscape, paving the way for a new energy geopolitics that extends far beyond Asia.
This emerging framework will likely emphasize diversification—both in terms of trading partners and energy suppliers—in order to reduce risks and limit market volatility. At the same time, these geopolitical shifts highlight the importance of accelerating the development of renewable energy and strengthening strategic oil and gas storage capacities, thereby enhancing the resilience of national energy systems and ensuring the stability of electricity networks in the future.
