Asia Could Face Energy Crisis First as Refineries Compete for Supply
Asia faces heightened vulnerability in its energy system as conflict involving Iran, the United States, and Israel exposes critical supply chain weaknesses. The region imports approximately 60% of its crude oil and petrochemical feedstock from the Middle East, making it the region with the greatest dependence on energy supplies from that area.
When conflict triggers distribution disruptions, Asian nations begin seeking alternative sources. However, the available options are severely limited.
According to Reuters, the conflict that erupted following Israeli and American attacks on Iran has directly driven a surge in global energy prices and increased inflation risks across many Asian countries.
Supply disruptions from the Middle East have prompted refineries across various nations, from China to Southeast Asia, to seek supplies from other regions despite significantly higher transportation costs and delivery times.
Several nations have even taken emergency measures to protect domestic supply. China and Thailand have halted temporary oil product exports, whilst Vietnam has suspended crude oil exports normally shipped to Australia. These steps reflect mounting pressure on the regional energy supply chain.
The principal problem lies in logistics. Oil from West Africa or the Americas requires 1.5 to 2 months to reach China. Purchase contracts must even be arranged approximately three months before delivery. By comparison, oil from the Middle East passing through the Strait of Hormuz typically arrives in China within approximately 25 days. This distance differential directly impacts transportation costs and supply flexibility.
Another constraint stems from crude oil characteristics. Refineries across Asia have been designed over decades to process medium-sour crude from the Middle East.
When crude types are switched, refinery operating parameters must be altered, including oil fraction separation points and petrol blend composition. Adi Imsirovic, director of energy consultancy Surrey Clean Energy, stated that such changes require complex technical adjustments within refineries.
Structural dependence also appears in long-term contracts. Richard Jones, analyst at Energy Aspects, explained that most Asian refineries are bound by fixed supply contracts with Middle Eastern producers. Replacing even a small portion of the approximately 16 million barrels per day of Middle Eastern oil entering Asia with Atlantic region supplies is virtually impossible in the near term.
Each nation’s situation differs. Japan obtains approximately 95% of its oil from the Middle East since halting nearly all Russian oil imports following the invasion of Ukraine. Refineries in that nation are largely ageing and specifically designed for Middle Eastern crude.
According to Kpler analyst Muyu Xu, Japanese refinery operators can blend light crude such as WTI or West African oil with heavy American crude to approximate Middle Eastern crude characteristics, although such operations carry technical and logistical risks.
Conversely, China maintains a more diversified supplier profile. Approximately half its oil imports originate from the Middle East, including Iran, which has been a major supplier. China also purchases oil from Russia despite Western sanctions. Its strategic reserves are estimated sufficient for approximately 78 days of consumption.
India occupies a more vulnerable position. The nation’s oil reserves amount to only approximately 25 days, whilst 55% of its oil imports originate from the Middle East. In the current conflict situation, India has begun seeking alternative supplies after the United States government granted a one-month waiver to continue purchasing Russian oil.
Supply disruptions have also spread to the liquefied natural gas (LNG) market. Qatar, the world’s second-largest LNG producer, has halted production owing to conflict. The impact is rapidly felt in Asia. India has begun restricting gas supply to industrial customers due to supply constraints.
Michal Meidan, energy researcher at Oxford Institute for Energy Studies, believes this situation could drive long-term shifts in energy mix composition. South Asian nations will likely reduce gas’s share in their energy systems and increase coal and renewable energy usage, following the strategy already implemented by China.
Should supply disruptions persist for an extended period, Asia’s energy policy direction could change fundamentally. Tim Zhang from Edge Research noted that increased usage of non-fossil energy such as renewables and nuclear power will be increasingly considered.
Geopolitical pressure on Middle Eastern oil supplies is forcing Asian nations to reassess the energy dependence structure that has long served as the foundation for regional economic growth.