Middle East War Puts Global Economy Under Major Threat

The global energy crisis resulting from the war involving the United States, Israel, and Iran is increasingly alarming following disruptions to oil distribution routes in the Strait of Hormuz. This situation has prompted emergency responses from several countries, ranging from releasing strategic reserves to switching energy sources to maintain domestic stability. Japanese Prime Minister Sanae Takaichi stated that her government will release part of its strategic oil reserves and utilise joint stockpiles managed by producer countries in Japan. This step is taken given Japan’s heavy reliance on the Middle East for 95 per cent of its oil imports. “Japan is beginning to release its strategic oil reserves, which are among the largest in the world,” Takaichi said, as quoted by AFP. In Southeast Asia, the Philippines is forced to revert to coal usage due to the surge in liquefied natural gas (LNG) prices. Philippine Energy Minister Sharon Garin described this policy as an emergency measure to begin on 1 April. “We have spoken with coal-fired power generation companies to check how much they can increase production,” Garin said. A similar situation is occurring in Ukraine, where President Volodymyr Zelensky has instructed the government to ensure a stable supply of diesel. Diesel prices in Ukraine have surged nearly 25 per cent since the outbreak of the Middle East conflict. This exacerbates Kyiv’s energy vulnerability, as its refining capacity has been destroyed by the Russian invasion since 2022. Nevertheless, Asian stock markets recorded green zones on Tuesday morning. Indices in Tokyo, Hong Kong, Shanghai, and Manila strengthened after US President Donald Trump delayed an attack on Iran’s energy sites and claimed positive talks with Tehran. However, this strengthening was held back after Iranian media denied negotiations between Tehran and Washington, which again pushed up crude oil prices. Executive Director of the International Energy Agency (IEA), Fatih Birol, warned that the global economy is under a “major threat” due to this energy crisis. Birol noted that at least 40 energy assets in nine Middle Eastern countries have suffered severe damage from the war. “No country will be immune,” Birol emphasised. Meanwhile, Chevron CEO Mike Wirth cautioned that the market has not yet fully accounted for the long-term impact of the Strait of Hormuz blockade. “Especially Asia, which faces real concerns regarding supply,” Wirth said. In agreement, TotalEnergies boss Patrick Pouyanne predicted that LNG prices will remain “very high” until the summer if the vital shipping route is not reopened soon. On the other hand, the Chinese government has begun intervening in the market by capping retail fuel price increases. China’s National Development and Reform Commission raised the maximum price of petrol by 1,160 yuan or approximately Rp2.85 million and diesel by 1,115 yuan or approximately Rp2.74 million per metric tonne to mitigate the impact of energy inflation on domestic consumers. The Middle East war presents an opportunity for Indonesia to undertake domestic reforms and strengthen its manufacturing and logistics sectors based on foreign direct investment (FDI).