The immediate fuel crisis

Asia is caught between a market it cannot afford to buy from and a supply line that will take weeks to restart, in a best-case scenario.

Negotiations remain ongoing, though not in person in Islamabad. What lies ahead is a complex, volatile process: posturing, brinkmanship, and game theory playing out across multiple scenarios until one side yields. The path will be messy and could carry major consequences for Asia Pacific economies.

Even if access through the Strait of Hormuz progressively normalizes, new loadings face voyage times of three to six weeks before reaching Asian discharge ports. The regional sour crude pipeline that Asian refiners are configured to run remains effectively broken. Atlantic Basin barrels are uneconomic. Gulf barrels are not arriving.

A two-week ceasefire window does not resolve either of those conditions, and the impact on diesel, gasoline, liquefied petroleum gas (LPG), and naphtha will be profound.

The downside scenario

In a worst-case scenario – conflict reignites, the Strait of Hormuz is effectively closed for six months and Brent approaches $200 per barrel – Asia faces a crisis of a different order of magnitude.

The parallel most often reached for is 1997. The Asian Financial Crisis was ultimately a story of currency mismatches, insufficient reserves, and policy frameworks not built to withstand external shocks of that severity. Many Asian economies are in a materially better position today: reserve buffers are larger, currency management has matured, and debt structures are generally more resilient. But the signposts cannot be ignored. A sustained energy supply shock of this nature would stress fiscal balances and widen current account deficits. It would also place renewed pressure on currencies, especially for energy-importing nations in emerging Asia with high debt and low reserves.

Asian economies would be compelled to reach for the Covid playbook: coordinated demand reduction, emergency stockpile releases, rationing frameworks, and accelerated fuel substitution. None of these is a comfortable policy position. All have distributional consequences that governments will be reluctant to confront but have to, sooner than they realize.

Keeping the lights on

LNG prices into Asia have eased on the back of the ceasefire. But if conflict resumes, prices above $20 per million British thermal units (MMBtu) are a very likely prospect, and the region would find itself in a familiar cycle: the coal-to-gas switch of recent years running sharply in reverse, back to gas-to-coal.

This raises two uncomfortable questions for policymakers.

First, which APAC markets can realistically make that switch? Coal-capable generation capacity – and the supply chains to feed it – has been partially retained in markets such as Japan, South Korea, India, and Indonesia, but deliberately wound down in others. The optionality is not evenly distributed, for a variety of reasons.

Second, and more structurally: if the post-conflict world reassesses LNG as a supply source that is geopolitically fragile, capital-intensive, and increasingly difficult to justify under climate commitments, does the current moment accelerate that reassessment? Coal as a crisis buffer is a good short-term answer for those who can make that switch. In the longer term, you can argue that it should remain as the ultimate hedge from the next shock

From crisis management to structural reform

Absorbing the shock of the Iran crisis will push policy and decision-makers into deeply uncomfortable positions in the short term. However, the more important task is to channel that discomfort into productive action. This means accelerating the transition toward genuine energy security built on diversity, domestic resource development, and long-term demand transformation, while avoiding knee-jerk, beggar-thy-neighbor strategies.

Three economies offer relevant case studies.

Brazil has built one of the most comprehensive and durable biofuel policy frameworks in the world. Through a combination of blending mandates, production incentives, and long-term infrastructure investment, Brazil has decarbonized a significant share of its transport sector while simultaneously reducing its exposure to imported crude. The framework was not built overnight; it took decades of consistent policy, surviving changes of government, but it now constitutes a genuine competitive advantage and a model for how to align energy security with decarbonization.

China has pursued energy self-reliance through the sheer scale of investment across every vector simultaneously: domestic coal rationalization alongside the world's largest deployment of solar, wind and nuclear capacity; aggressive development of domestic electric vehicle adoption to reduce oil demand; and strategic reserve management. China remains a net energy importer, but its import dependence per unit of GDP has been deliberately and successfully reduced. The lesson is less about any single technology and more about the deliberate, sustained mobilization of state capacity toward a strategic objective.

Norway demonstrates what is possible when hydrocarbon revenues are invested with long-term discipline rather than consumed. The Government Pension Fund Global – funded by North Sea oil revenues – now underpins Norwegian fiscal stability, insulating the country from energy price volatility. More directly relevant to APAC, Norway's domestic electricity system is almost entirely hydropower-driven, meaning that Norwegian households and industry are effectively decoupled from fossil fuel price shocks. For resource-rich APAC economies, such as Australia, Indonesia, Laos, Malaysia, and New Zealand, the Norwegian model of converting resource rents into long-term fiscal and energy resilience is a template worth studying seriously.

Energy pragmatism may be the way forward

The common thread across Brazil, China and Norway is that none of their energy security gains were accidental. Each required sustained political commitment, patient capital allocation, and a willingness to accept short-term costs for long-term structural resilience. 

Asian policymakers now face a moment of enforced clarity. The crisis has made visible what was already true: that energy import dependence, combined with fiscal vulnerabilities and thin reserve buffers, creates systemic exposure that no amount of short-term diplomacy can reliably hedge.

The appropriate response goes beyond merely managing the immediate supply disruption, although that is necessary. Instead, the crisis must be the forcing function for building the infrastructure, demand flexibility, and strategic reserves required for a more resilient Asia. By deepening the regional integration of energy systems, we can reduce both the probability and severity of the next shock.

The window to act, as always, is open most fully when the pain is most acute. Asia still has time to build real energy resilience, but only if it acts now to develop deeper inter-Asia trade, collaboration and an integrated approach to energy security. Never waste a crisis; the countries that lead on these reforms today will face the next inevitable shock from a position of strength.

Author:

Vijay Krishnan
Managing Director, Head of APAC
vijay.krishnan@rystadenergy.com

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