Tensions in the Middle East: Implications for Southeast Asia

Energy Security Returns — A System Under Strain

“US–Israel war in Iran is the greatest threat to global energy security in history,” the International Energy Agency has warned. Three weeks into the conflict, that assessment is no longer rhetorical but observable in markets, flows and policy responses across the world.¹

Energy security has returned to the centre of the global economy. What is unfolding is not simply another geopolitical confrontation but a systemic shock—one that, in scale, rivals or exceeds previous oil and gas crises. By some measures, the disruption until now already surpasses those of 1973, 1979 and even the aftermath of Russia’s invasion of Ukraine in 2022. As in those episodes, the effects will not be evenly shared: some economies will absorb the shock; others will be reshaped by it. ²

The immediate trigger is clear. Escalation involving Iran has disrupted flows through the Strait of Hormuz, the world’s most critical energy chokepoint. Before the conflict, roughly 20m barrels of oil a day—around a fifth of global consumption—passed through the strait, alongside about one-fifth of global LNG trade and a significant share of refined products. A substantial portion of this flow is now constrained. Early estimates suggested losses of 10–11m barrels per day; more recent assessments indicate that disruption remains significant at 7–8m barrels per day, as production shut-ins and logistical bottlenecks take hold. ³

In volumetric terms, the scale is striking. A disruption of 7–8m barrels per day implies a loss of more than 200m barrels in a single month—enough to strain even the largest domestic emergency stockpiles. Coordinated releases, including the International Energy Agency’s reported 400m-barrel drawdown, may cushion the impact, but they do not resolve it.⁴

Three weeks into the conflict, markets are no longer anchored in fundamentals but in uncertainty. Brent crude oil prices have swung from roughly $70 to $120 per barrel within days. ⁵ Such volatility is not unusual in crises. ⁶ What is more telling is the behaviour of physical markets: time spreads have widened sharply, refining margins have surged to record levels, and product prices—particularly diesel and jet fuel—have risen faster than crude, in some cases exceeding $200 per barrel equivalent in Asia.⁷

Oil First — Where the Shock Is Priced Before It Is Understood

The most striking feature of this shock is not only its scale but also how it is evolving. The early phase was marked by confusion—a period of logistical discovery as markets struggled to understand disruptions in real time. The current phase is more selective, but no less uncertain. Markets are no longer asking what is happening but how long it will last. The focus has shifted from magnitude to duration.

That shift exposes a deeper weakness. The oil market is not a single pool of interchangeable barrels but a network of flows, grades and refining configurations. Replacing supply is not simply a question of volume but of matching quality, location and timing. In practice, that is far harder than it appears.

At first glance, the system looks resilient. Inventories are not depleted. Spare capacity—particularly in Saudi Arabia and the United Arab Emirates—exists on paper. Strategic reserves can be released. Yet these buffers have proven less effective than expected. The constraint is not supply alone, but access to it. Barrels outside the Gulf cannot quickly substitute for those that would normally transit through it. Differences in crude quality, refining requirements and transport logistics limit adjustment.

Strategic reserves illustrate the point. Much of the crude they contain is poorly matched to immediate refining needs—too light or too heavy, or simply too far from the markets under strain. Even large releases have therefore struggled to stabilise prices or ease product shortages.⁸

This reflects a broader reality: energy security is not just about production, but about systems. Shipping routes, insurance markets, infrastructure and finance are as critical as supply itself. All are now under strain. Tanker rates have surged, in some cases generating tens of millions of dollars per voyage. At the same time, vessels worth over $100m have become increasingly difficult to deploy, as operators weigh rising risks. Insurance costs have climbed sharply; in some cases, cover has been withdrawn altogether.

The result is that supply may exist, but cannot move. At times, traffic through the Strait of Hormuz has fallen close to zero, despite military escorts. The market is therefore facing not only a supply shock, but a transport shock. The distinction is crucial: production can be restored relatively quickly; disrupted systems cannot.

Then Gas — Where Rigidity Turns Shock into Constraint

For decades, such a scenario was treated as unlikely. The closure of the Strait of Hormuz was featured in contingency planning, but typically as a short-lived disruption only. The assumption was that military intervention or market adjustment would restore flows within days. That assumption now looks optimistic. There is, as yet, no clear mechanism for reopening the strait at scale.⁹

Duration, therefore, is the critical variable. Markets can absorb short shocks; they struggle with prolonged ones. If disruption persists for weeks, inventories are drawn down and alternative supply is sought. If it extends into months, the adjustment becomes more structural. Production may be shut in, trade flows reconfigured and demand reduced—not through efficiency gains, but through outright contraction.

In this context, price performs a dual role. It reflects scarcity, but also enforces it. Higher prices curb consumption—by discouraging travel, slowing industrial activity or forcing substitution. This process of “demand destruction” is gradual, but becomes more pronounced as disruption endures.

The effects are already extending beyond oil. Gas markets, particularly LNG, are more rigid and less able to adjust. Unlike oil, LNG depends on fixed infrastructure—liquefaction plants, specialised tankers and regasification terminals. Supply chains are less flexible, and contracts are more binding. Disruptions cannot easily be offset.

The scale is significant. Qatar alone accounts for around 20% of global LNG exports. Any sustained loss of its output would rival the largest gas shocks of recent decades. Yet spare capacity elsewhere is limited, and new supply takes years to develop.

As a result, LNG prices have risen sharply, and competition between buyers has intensified. Europe, still adjusting to reduced Russian gas flows, is once again competing with Asia for cargoes. In such a market, price becomes not just a signal, but a mechanism of rationing—directing supply to those willing and able to pay.¹⁰

Coal’s Return — The Fuel of Last Resort Becomes First Response

As gas markets tighten, a familiar pattern is re-emerging across Asia: a renewed turn to coal. Utilities and policymakers, confronted with constrained LNG supply and surging prices, are reverting to coal-fired generation as a stabilising backstop. Recent reporting highlights how the current crisis is already accelerating this shift, with several Asian economies increasing coal procurement to offset gas shortages and manage electricity costs.

In Southeast Asia, the shift is already visible at the operational level: the Philippines is ramping up coal-fired power while cutting LNG-fired output; Vietnam’s EVN has entered negotiations to secure additional coal supply; and Thailand is increasing generation at its Mae Moh coal plant to preserve scarce LNG for higher-value use.¹¹

This adjustment is not without precedent. During previous gas shocks, coal has served as the system’s “fuel of last resort”—readily available, dispatchable and often cheaper in relative terms. Yet its resurgence carries broader implications. It complicates decarbonisation pathways, raises environmental costs and underscores a deeper reality: in moments of crisis, energy systems prioritise security over transition. More broadly, the region’s continued reliance on coal reflects structural constraints in energy diversification, as explored in a wider analysis of Asia’s coal dependency and energy security trade-offs.

Finally Policy — Where Global Shock Becomes Domestic Reality

Geography will shape the impact. Around 80% of oil and nearly 90% of LNG passing through the Strait of Hormuz is destined for Asia, concentrating risk in the region. The shock may be global, but its burden is not.

Within Asia, resilience varies. Japan and South Korea hold substantial strategic reserves—equivalent in some cases to 90–160 days of net imports. China has built significant stockpiles, though their scale remains opaque. Southeast Asia, by contrast, is more exposed, with limited reserves and a heavier reliance on spot markets.¹²

The adjustment is immediate. Higher fuel costs feed through into electricity prices, transport costs and broader inflation. Governments may respond with subsidies or price controls, but these carry fiscal costs. In more severe cases, physical shortages may require demand management—curbing industrial output or prioritising essential consumption.

The crisis also exposes the limits of a commonly invoked concept: energy independence. Even economies that produce sufficient energy domestically remain exposed to global price movements. Markets are integrated; shocks are transmitted. The distinction between producers and consumers matters less than it once did.

What matters, then, is not only the scale of disruption but how it propagates. The initial shock appears in oil markets, through prices and physical flows. It is amplified in gas markets, where adjustment is more constrained. It feeds into geopolitics, as states seek to secure supply or exploit scarcity. Ultimately, it reaches domestic economies through inflation, fiscal pressure and, in some cases, physical limits on energy use.

What Comes Next — Where the Pressure Will Surface

The analysis that follows traces how this shock moves through the system—beginning with oil, where disruption is first priced, then into gas and LNG, where constraints are tighter and adjustment slower. It also considers the return of coal as a fallback across Asia, before turning to the geopolitical dimension and, ultimately, the implications for the region.

The impact will be uneven—shaped less by the shock itself than by how prepared economies are to absorb it. For Asia, where energy systems remain heavily dependent on imported fuels and exposed maritime routes, the vulnerability is structural. The challenge is not only securing energy but also ensuring that the system can withstand disruptions when flows are constrained.

What remains uncertain is duration. If brief, the disruption will register as another episode of volatility. If prolonged, it will begin to reshape trade flows, pricing structures and policy priorities across the region—forcing governments to reconsider how energy security is defined and delivered.

Either way, one conclusion is already clear: energy security in Asia can no longer be treated as a given. It must be built—deliberately, and at pace—before the next crisis tests it again.

The articles that follow examine where the pressure is building—and where it is likely to surface first.

Written by Suchart Charles Klaikaew, Project Lead, IKI JET Thailand – Just Energy Transition in Coal Regions (JET-CR Platform) and Senior Energy Advisor, CASE for Southeast Asia.

Note: As the conflict continues to evolve, the pace and complexity of developments make it increasingly difficult to follow. The CASE article series tracks these shifts closely, providing clear and timely analysis of what matters most for energy markets and security. As conditions change, the series will be updated to reflect the latest developments—helping readers stay ahead in an increasingly fluid and uncertain landscape. Stay tuned.

Tensions in the Middle East: Implications for Southeast Asia

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