Russian Oil Becomes a 'Saviour' for Southeast Asia?

Despite years of Western sanctions, Russia remains one of the largest energy suppliers on the global stage. Regardless, Russia is the world’s second-largest oil exporter after Saudi Arabia and the second-largest gas exporter after the United States. Russia’s geographical position allows it to export its energy without passing through the Strait of Hormuz, which is currently disrupted by the US-Israel war against Iran.

Last week, EU foreign policy chief Kaja Kallas warned Southeast Asian countries not to switch to Russian oil. After meeting with foreign ministers from the Association of Southeast Asian Nations (ASEAN) in Brunei, Kallas said that increased purchases of Russian oil would help Moscow fund the war in Ukraine.

Kallas also emphasised that the EU is not trying to punish Southeast Asian governments or companies directly, but hopes that relevant parties can reduce Russia’s oil revenues.

However, the warning comes amid threats to energy security and food production facing several Southeast Asian capitals, blurring the diplomatic impact of the war in Ukraine.

“Faced with a severe energy crisis that could shake economies and spark street protests, some Southeast Asian governments will prioritise oil supplies over what they see as a distant conflict with no direct interest to them,” Ian Storey, a senior researcher at the ISEAS-Yusof Ishak Institute in Singapore, told DW.

Indonesia and the Philippines buy Russian oil

Southeast Asia consumes around 5 million barrels of oil per day but produces only about 2 million barrels, forcing it to buy the rest on the global energy market. Most of its oil imports come from the Middle East.

Indonesia announced last week that it will import around 150 million barrels of Russian crude oil this year, following President Prabowo Subianto’s visit to Moscow.

The Philippines, considered a US ally in the region, received a shipment of Russian crude oil in March. This was the first shipment in five years. Manila also asked Washington to extend a sanctions exemption to allow continued purchases.

Thailand has explored ways to obtain fertiliser and other agricultural products from Russia, while Vietnam is seeking alternative fuel supplies after China and Thailand restricted exports of refined fuel. Vietnam relies on China and Thailand for more than 60% of its jet fuel needs.

Southeast Asia’s crude oil imports plummet to 2015 levels

The war in the Middle East has caused the largest supply disruption in the history of the global oil market, with crude oil and oil product flows through the Strait of Hormuz dropping to very low levels from the pre-war quota of 20 million barrels per day, according to the International Energy Agency.

In the first month after Russia’s invasion in February 2022, Brent crude prices rose from $95 to $115 (Rp1.6 million to Rp1.9 million) per barrel, a 21% jump.

By contrast, the ongoing crisis in the Middle East has caused Brent oil prices to rise from $71 to $103 (Rp1.1 million to Rp1.7 million) in March, marking a nearly 27% increase, followed by another surge in April, setting prices around $120 per barrel amid hopes of reaching an agreement to end the conflict.

Southeast Asia’s crude oil imports fell 30% compared to April last year, the lowest level since 2015, according to data compiled by Kpler, a Belgium-based analytics firm.

ASEAN countries have warned that the cost of living across the region has risen, with low-income households and small businesses most affected.

How are ASEAN countries addressing the oil crisis?

Southeast Asian governments acted quickly following the US and Israel attacks on Iran at the end of February.

The Philippines has declared a one-year national energy emergency and formed an emergency committee for fuel and essential needs. Nevertheless, inflation surged to 7.2% in April, up from 2.4% in March, according to government data.

Indonesia relies on government-regulated prices and subsidies, allocating $22.4 billion (Rp358 trillion) for energy subsidies and compensation. Meanwhile, Thailand has set fuel price caps for cooking, such as LPG until the end of May, and is using government reserve funds to suppress fuel costs.

Malaysia is also trying to mitigate the impact through monthly fuel subsidies. These subsidies reportedly increased from around $179 million (Rp2.9 trillion) in January to up to $1.5 billion (Rp24.7 trillion).

A few weeks after the war in Iran broke out, Philippine authorities stated they had fuel stocks sufficient for about 45 days. On 25 March, President Ferdinand Marcos Jr. said he was “quite confident” the country had secured additional shipments to keep supplies fulfilled.

With the initial deadline nearly exhausted, this crisis is already affecting daily life. Transport and consumer organisations in the country have threatened to strike due to fuel cost pressures, increasing the risk of disruptions in cities heavily reliant on buses and motor vehicles.

In Vietnam, aviation authorities have warned airlines to prepare for reduced domestic flights starting in April, following the halt in jet fuel exports by China and Thailand.

Across the region, farmers are “squeezed” by rising diesel and fertiliser prices. Rice producers in Thailand, Vietnam, the Philippines, and Indonesia are reconsidering their farming plans.

Is it possible for fuel supplies to run out just like that?

Indra Overland, Head of the Energy Research Centre at the Norwegian Institute of International Affairs