This oil shock will hit Asia harder than the 1970s

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The dizzying changes wrought by energy shocks are only ever seen in the rearview mirror.

When the 1973 and 1979 oil crises first swept the world, analysts assumed the future would be business as usual. Crude demand from Western Europe would remain broadly stable throughout the 1980s, according to a declassified 1982 analysis for the Central Intelligence Agency. The Organisation for Economic Co-operation and Development forecast in 1978 that its imports would rise to 35 million barrels by 1985.

Things didn’t turn out that way. Faced with a sevenfold increase in the cost of crude, Europe began a radical shift. A vast fleet of nuclear reactors in France, home boilers powered by North Sea gas in England, and a controversial pipeline connecting Germany to immense Siberian gas fields shredded earlier forecasts. By the mid-1980s, Europe’s gas consumption had more than doubled from its level in 1973, but oil fell 20 per cent. Crude imports slumped 30 per cent to barely more than half what the OECD had expected.

We’re seeing the first tremors of a similar earthquake now in Asia. More than 80 per cent of the oil and gas that passes through the Strait of Hormuz heads east.

Like Europe, most of the region is fundamentally short of petroleum, and getting more so with each passing year. Japan and South Korea have long been among the most import-dependent countries on the planet for their energy supplies, but the whole region is heading in the same direction.

Shortages and price rises for fossil fuels are already starting to hit consumers, in a way that will upend previous forecasts as dramatically as the 1970s oil shocks.

Vietnam became a net importer of energy over the past decade, and even petroleum-rich Malaysia is now a net fuel importer. Indonesia still subsidises fuel like the OPEC member it was for decades, but it’s been reliant on imports for more than 20 years. Domestic gas fields that sustained growth in Bangladesh, Pakistan and Thailand in previous decades are now giving out, leaving the countries at the mercy of costly,........

© The Age