Middle East energy shock spreads across Asia, threatening supply chains and industrial output

From Thai farmers rushing to purchase additional fuel supplies to Indian refinery executives staying up overnight to monitor developments in the Persian Gulf, the unfolding events illustrate how the energy shock is beginning to ripple across Asia—a region heavily dependent on imported oil and gas.

Over the past week, the Iran conflict has intensified, with retaliatory strikes escalating and energy infrastructure increasingly becoming a direct target. These developments have not only disrupted oil and gas production and forced several export facilities to suspend operations, but have also severely affected maritime traffic through the Strait of Hormuz—a critical shipping artery connecting major energy producers to global markets.

Fuel prices surge, long queues at gas stations

Global oil prices have surpassed the USD 100 per barrel threshold, but the impact of the crisis on Asia extends far beyond price volatility. As the world’s largest energy-consuming region and one highly dependent on imports, Asia is already experiencing mounting pressure on fuel inventories, energy costs, and industrial activity.

Since mid-last week, fuel input inventories at power distributors and refineries across Asia have begun to decline, forcing some operators to scale back capacity utilization. Energy costs for manufacturing firms have also risen sharply. In Singapore, several marine fuel suppliers have begun restricting sales.

The Philippine government has introduced shorter working weeks at selected public institutions to conserve energy, while Bangladesh has reduced decorative street lighting during Ramadan, an important Islamic holiday, to curb electricity consumption.

In China, authorities have also requested refineries to limit fuel exports in order to secure domestic supply.

According to Zafar Iqbal Sarwar, Chief Executive Officer of ZIS Textiles Pvt., a textile manufacturer based in Faisalabad, Pakistan’s industrial hub, the country’s textile sector could face near paralysis if the situation persists for another week. The company supplies garments to supermarket chains in Europe and the United States and relies heavily on natural gas for dyeing operations.

“The closure of airports in Qatar and the United Arab Emirates (UAE) has also prevented us from sending product samples to clients as usual. The risk of fuel shortages is imminent and will likely become evident within the next two to three days. Gas stations are requesting additional fuel supplies but there is simply no inventory available. Our input costs have already increased by 35%,” Sarwar told Bloomberg.

Rising risk of production disruptions

Just over a week after the conflict erupted, supply disruptions are beginning to spread, significantly increasing risks for businesses across Asia.

In India and Pakistan, fertilizer production—an industry heavily reliant on natural gas—is being severely affected, adding pressure to food prices and potentially increasing the fiscal burden of government subsidies if instability persists. Meanwhile, in northern Thailand, farmers have been lining up at fuel stations to purchase diesel, fearing they may not have enough fuel to complete rice harvesting in the coming weeks.

“In urban areas, diesel prices are projected to rise by about 15%. The Thai government has temporarily frozen prices for two weeks, but the outlook remains highly uncertain,” said Abhi Agarwal, co-founder of the agricultural firm Living Roots in Chiang Mai, which works closely with farmers in northern Thailand.

According to Agarwal, many farmers have brought containers to fuel stations to stockpile diesel, although several stations are already running out of fuel.

India is among the economies most exposed to the crisis, as it relies heavily on imports to meet domestic oil demand, with nearly half of its crude imports transiting through the Strait of Hormuz.

Previously, India had reduced purchases of Russian crude under pressure from the United States, shifting more procurement toward Middle Eastern suppliers. However, within the past week, the conflict has stranded multiple crude cargoes bound for India, pushing import costs higher and further contributing to the depreciation of the Indian rupee.

“The situation is evolving rapidly, but the risks to the Indian economy should not be underestimated,” said Dhiraj Nim, economist at ANZ Banking Group Ltd.

The United States has somewhat eased pressure on India by granting a temporary waiver, allowing the country to continue purchasing Russian crude shipments currently stranded at sea for 30 days without triggering sanctions.

This move marks a notable shift after months of Washington urging New Delhi to scale back Russian oil imports. Taking advantage of the temporary window, Indian refineries have moved quickly to purchase millions of barrels of crude already in transit, even at elevated prices.

“Russian crude is no longer as cheap as it used to be. In February, buyers were still able to secure discounted prices, but now they must pay significantly more. Nevertheless, amid tight supply conditions, the key issue for India is availability rather than price,” said Sonal Varma, economist at Nomura.

India’s Mangalore Refinery and Petrochemicals Ltd. has temporarily suspended product exports and shut down a crude processing unit due to declining inventory levels.

According to a Bloomberg source, Reliance Industries Ltd., which operates India’s largest and the world’s biggest refining complex, has established a dedicated monitoring center to track developments in the Middle East and identify alternative crude supply opportunities.

While the US policy adjustment has been welcomed by the market, analysts note that it only offers temporary relief and does not address India’s underlying energy vulnerabilities.

Gas market tensions intensify

India’s shortage extends beyond crude oil to include liquefied natural gas (LNG)—a critical fuel for industrial production—and liquefied petroleum gas (LPG), an essential cooking fuel. India is currently the world’s second-largest LPG importer, relying on the Middle East for more than 90% of its supply.

For natural gas, India’s difficulties mirror those faced by many Asian economies. Disruptions in shipping through the Strait of Hormuz come at a time when LNG cargoes from the United States and Australia are being redirected toward the Atlantic Basin to capture higher prices, further tightening supply in Asia.

The situation worsened after QatarEnergy announced it was unable to meet contractual LNG deliveries due to drone attacks linked to Iran. As a result, the supply chain has been disrupted, with importers failing to receive shipments as scheduled, gas distributors lacking supply for customers, and downstream consumers ultimately bearing the impact.

This is particularly concerning given that Qatar supplies approximately 30% of China’s LNG demand, around 50% of India’s, and as much as 99% of Pakistan’s.

“The market is drifting back into the danger zone of a gas crisis,” said Saul Kavonic, energy analyst at MST Marquee.

According to Kavonic, the most straightforward demand-reduction measures were already largely implemented during the 2022 energy crisis, leaving limited policy space to respond to further LNG shortages.

Against this backdrop, buyers in advanced Asian economies—where companies can pass some of the higher costs on to consumers—are accelerating purchases for delivery from April onward.

Taiwan, a major global semiconductor manufacturing hub that depends heavily on seaborne gas imports, has rushed to secure alternative LNG cargoes for next month, while South Korea is undertaking similar procurement efforts.

Many companies are prioritizing conserving existing fuel supplies to weather the crisis. In Japan, several power utilities have shut down generating units to save fuel, while in China, some firms have cancelled export plans in order to preserve supply for the domestic market.

However, for most businesses, policy options are increasingly limited, leaving them with only two choices: raise prices or cut production.

In India, Adani Total Gas, a major supplier of natural gas to households, factories, and transport fleets, has tripled prices for industrial customers exceeding 40% of their daily allocation quota. Meanwhile, gas distributors such as Petronet LNG and Gujarat Gas have also announced delivery restrictions due to transportation disruptions.

Analysts warn that if supply disruptions persist, power shortages could extend into April and May, when South and Southeast Asia enter the peak summer season, driving up demand for cooling and placing additional strain on power grids. In response, Thailand, Bangladesh, and several Southeast Asian countries are urgently seeking spot LNG cargoes for March and April delivery.

For many households, rising fuel prices also mean considering alternative energy sources. Shaila Devi, a 50-year-old farmer cultivating apples and vegetables in Himachal Pradesh, northern India, said the last time she purchased a cooking gas cylinder was about a month ago, at a price of 1,050 rupees (approximately USD 11). She is currently waiting to hear from her local supplier about whether another cylinder will be available.

“If not, we can still rely on firewood,” Devi told Bloomberg.

According to VnEconomy

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