MAJOR REPERCUSSIONS FOR ASIA

This scenario has major repercussions for Asian buyers of Gulf energy. 

The conflict is clearly showing that the region, which is also home to all of oil’s spare capacity, remains vulnerable. The Strait of Hormuz will remain a chokepoint for global trade whatever measures are taken to try and limit the threat Iran can pose to the waterway. China, India, Japan and South Korea together receive almost 70 per cent of Middle Eastern crude flows through the Strait of Hormuz, meeting nearly half their combined crude requirements via this route. The imperative for Asian powers to safeguard their energy lifelines is therefore becoming ever more urgent.

This is especially important for China. Beijing has taken various steps to reduce these risks, including diversifying its imports with a goal to import no more than 20 per cent of total oil imports from any one source, as well as building up substantial domestic oil stockpiles.

But the limits of this strategy are tested when almost 50 per cent of Chinese crude imports originate from the Middle East. In the meantime, China’s leadership has urged local refineries to halt exports of gasoline, diesel and jet fuel. We understand the Indian government is also asking state-owned refiners to prioritise domestic product supplies, similar to the approach taken by Thailand.

Security of supply will be forced back to the top of the agenda for governments in the new world order, much as it was after Russia invaded Ukraine in 2022. That will continue to reshape oil markets for a long time to come.