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Gulf conflict sends oil prices soaring
The escalating US-Israel conflict with Iran has disrupted global energy markets, pushing oil prices above $100 a barrel. Attacks on shipping routes and energy infrastructure, along with the closure of the Strait of Hormuz-a critical chokepoint for one-fifth of the world's oil-have triggered widespread supply concerns.
Asia's heavy reliance on Middle Eastern oil
Nearly 90% of the oil and gas passing through the Strait of Hormuz last year was destined for Asia, exposing the region to severe economic strain. Households depend on these supplies for heating, transportation, and electricity, while industries require them to sustain manufacturing operations.
Southeast Asia is particularly vulnerable. Even oil-producing nations like Malaysia and Indonesia have shifted from net exporters to importers over the past decade, compounding their exposure to supply disruptions.
Refinery constraints deepen crisis
Middle Eastern crude, typically classified as "heavy sour" or "medium sour," is the primary feedstock for refineries across Southeast Asia. Jane Nakano, a senior fellow at the Center for Strategic and International Studies, notes that switching to alternative suppliers, such as the US, would require costly refinery upgrades.
"It would take significant investment to alter refinery specifications."
Jane Nakano, Center for Strategic and International Studies
The Philippines, which sources 95% of its crude from the Middle East, has already mandated a four-day workweek for public employees to conserve fuel. Other governments are promoting remote work and adjusting air conditioning settings in public buildings to reduce energy consumption.
Fuel and food prices spike across Asia
Rising transportation costs are inflating food prices, particularly in import-dependent nations. Singapore imports 90% of its food, while Indonesia relies entirely on foreign wheat. Jet fuel prices have surged nearly 60% in the past week, exacerbating inflationary pressures.
In Vietnam, diesel prices have climbed 60% since last month, sparking panic-buying at petrol stations. Similar scenes have unfolded in Bangladesh, where motorists faced long queues to secure fuel.
Global ripple effects
While Asia is hardest hit, other regions are also feeling the impact. US gasoline prices have risen 23% in a month, and UK diesel costs are up 9%. Governments are scrambling to mitigate the fallout: South Korea has imposed temporary fuel price caps, Japan is subsidizing oil wholesalers, and France's TotalEnergies will freeze petrol and diesel prices until month-end.
The UK is reviewing a planned fuel duty increase, while China, with its vast oil reserves and high electric vehicle adoption, is better insulated. However, even China's unofficial imports of Iranian oil-despite US sanctions-have not fully offset the supply crunch.
Gas markets under pressure
The conflict has also disrupted liquefied natural gas (LNG) supplies. QatarEnergy, a major global exporter, halted production last week after attacks on its facilities. While Europe has reduced its reliance on Gulf gas-sourcing most LNG from Norway and the US-Asian buyers are competing for alternative supplies, driving up global prices.
David Oxley, chief climate and commodities economist at Capital Economics, warns that the US, despite increased fracking, cannot immediately replace lost Gulf output due to infrastructure constraints. Though new export capacity is coming online, it remains insufficient to offset the shortfall in the near term.
Stockpile releases offer limited relief
Japan and South Korea, both heavily dependent on Middle Eastern energy, have agreed to release millions of barrels from national reserves in coordination with the International Energy Agency. However, their vulnerability has grown since reducing Russian oil imports following the Ukraine invasion.
