How Asia-Pacific Is Fighting a Fuel Shock That Could Get Worse

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(Bloomberg) — Asian nations face the prospect of prolonged strain on crucial energy supplies as the conflict in the Middle East grinds past the two-month mark, with the Strait of Hormuz still largely off-limits to shipping.

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Governments have already raided their policy toolkits by amping up subsidies to keep a lid on energy prices, restricting fuel use and ordering public officials to work from home. Officials have shuttled across the globe to secure alternate oil and gas supplies, including from sanctions-hit Russia. It’s all coming at a cost to their budgets.

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The disruption has laid bare how reliant the region is on Middle East energy, and how dwindling stockpiles may hit everything from Taiwan’s chip supply chain to rice harvests, Asia’s biggest food staple.

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“Subsidies, export curbs, and WFH mandates blunt the immediate pain but won’t prevent deeper trouble if disruptions linger,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis. “They’re political band-aids — popular short-term, fiscally costly, and market-distorting.”

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Even if the Strait of Hormuz reopens, it will take time to recover, with Asian countries having had a wakeup call to improve fiscal strength and energy security.

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The worst-case scenario if the war drags on would be blackouts, price spikes in food or fertilizer, and factory slowdowns, Garcia-Herrero said. If the strait were to reopen, she said “APAC recovery should be swift — weeks for rerouting and refinery flows to stabilize.”

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“It all depends on how long the conflict and high prices last. But most in Asia simply cannot afford to hold out for too long,” said Roland Rajah, lead economist and director at the Lowy Institute’s Indo-Pacific Development Center. “Repeated shocks quickly exhaust fiscal space,” he said, citing examples such as the Covid-19 pandemic and tariffs.

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Here’s a snapshot of how the region has responded so far to the fuel squeeze:

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China

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The world’s largest crude importer — and the biggest buyer of Iranian oil — has managed to mitigate the hit by diversifying its fuel sources for years. It hasn’t resorted to touching its national oil reserves, which Bloomberg Intelligence estimates to be as much as 1.4 billion barrels, though it allowed state-run refiners to tap some commercial reserves. It imposed price controls on energy and was said to have ordered private refiners to maintain 2025-level production at any cost. Officials considered relief for struggling state-run airlines, according to people familiar with the matter. As part of a broader strategy, China is reviving coal-to-gas projects. Underlining its healthy stockpiles, Chinese tankers appeared to be delivering diesel and other fuel to neighbors such as Vietnam and the Philippines.

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India

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The world’s No. 3 oil importer is racing to shore up supplies. It is due to receive nearly 16 million barrels of Venezuelan crude in May and June, while state refiners snagged millions of barrels from Russia after the US issued a waiver. It raised export taxes on diesel and jet fuel, though officials were forced to quickly scale back a doubling of plane fuel prices. State-run oil firms have been ordered to keep fuel prices stable, averting widespread hikes at the pump. However, some owners of trucks — which move nearly 70% of the nation’s cargo — have reported facing diesel rationing.