The ongoing oil crisis, a direct consequence of the US-Israeli war on Iran, has sent shockwaves across Southeast Asia, prompting governments and businesses to take drastic measures to mitigate the impact of potential energy shortages. As the Strait of Hormuz remains closed to maritime traffic, the region, heavily reliant on imported oil and gas, is facing a critical juncture.
Impact on Southeast Asian Nations
The Philippines, Thailand, Vietnam, and Myanmar are among the countries implementing unique strategies to conserve energy. From a four-day workweek in the Philippines to alternating driving days in Myanmar, these nations are showcasing their resilience and adaptability.
Market Interventions
Governments are also intervening in the market to stabilize fuel prices. Thailand's temporary price cap on diesel and Vietnam's utilization of its fuel price stabilization fund are examples of proactive measures.
Regional Exposure and Vulnerability
Southeast Asia's reliance on imported oil and gas, particularly from the Strait of Hormuz, has exposed its vulnerability. With 84% of crude oil and 83% of liquefied natural gas passing through the Strait destined for Asia, the region is at risk. The Philippines, Thailand, Malaysia, and Brunei are especially vulnerable, relying on imports for a significant portion of their crude supply.
Supply Chain Shock and Limited Reserves
The supply chain shock has highlighted the region's limited energy reserves. Vietnam, with plans to procure crude oil from non-Middle Eastern countries, is at a high risk of fuel shortages. Indonesia, the largest economy in Southeast Asia, maintains a fuel reserve of only 21-23 days.
Comparison with Northeast Asia
Southeast Asian countries' emergency stockpiles are significantly lower than those of their peers in Northeast Asia. Japan, South Korea, and China have reserves lasting 254, 208, and 120 days, respectively.
Challenges Beyond Crude Oil
Replacing crude oil supplies is just one part of the challenge. Economies must also supplement petroleum products derived from crude oil, such as gasoline, diesel, and jet fuel. Laos, Cambodia, and Myanmar, lacking oil refining capacity, are heavily dependent on exports from neighboring countries, which are now under strain.
Petrochemical Industry Impact
The supply chain disruptions have affected the petrochemical industry, with companies declaring force majeure, indicating potential contractual obligations may not be met. Thai petrochemicals firm Rayong Olefins has suspended plant operations due to a lack of raw materials.
Potential Consequences
If the situation persists, the region can expect higher prices and restrictions on oil and gas use. The Economist Intelligence Unit predicts global oil prices to average around $80 per barrel in 2026, which, coupled with high natural gas prices, will impact inflation and growth across Asia.
Recession Concerns
The prospect of a recession looms large if the situation does not improve in the coming weeks. As Priyanka Kishore from Asia Decoded notes, the region may face significant economic challenges if the Strait of Hormuz remains closed.
In conclusion, the oil crisis has exposed Southeast Asia's vulnerability and highlighted the need for a more sustainable and diversified energy strategy. The region's ability to adapt and innovate will be crucial in navigating this challenging period.
