ASEAN Beat | Economy | Southeast Asia

In Southeast Asia, the Scramble for Energy Is On

With each nation exposed in different ways to global oil markets, the regional impact of the price shock is likely to be significant, but uneven.

The impacts of the global oil price shock continue to reverberate through Southeast Asia, bringing isolated fuel shortages, economic disruption, and a scramble for energy.

While most of the region’s nations rely on imported oil and gas, each Southeast Asian nation has its own unique mix of vulnerabilities in terms of fiscal capacity, national oil stocks, and reliance on oil and liquefied natural gas (LNG) imports through the Strait of Hormuz.

Of the region’s major economies, Indonesia is the most fiscally vulnerable, and Vietnam has the smallest known national oil reserve. The Philippines and Singapore are most reliant on imported energy, while Thailand is most exposed to Gulf oil imports in particular. And these will all likely fare better than the region’s poorest nations: Cambodia, Laos, Myanmar, and Timor-Leste.

ASEAN’s economic ministers warned this week that the supply disruptions “are leading to higher freight, insurance, and logistics costs and contribute to inflationary pressures on energy, food, and other essential goods” across Southeast Asia. If the current conflict is prolonged, it could “impact the livelihoods of millions of people in the region, and hinder economic progress in ASEAN.”

The oil supply crisis has already forced nations across the region to restrict fuel exports and depress demand by introducing four-day work weeks and COVID-19-style work-from-home arrangements, discouraging the public from using private vehicles, and reducing air conditioning use in government buildings.

It has also prompted a search for alternative supplies of energy, either by seeking out alternative sources of crude oil and refined fuels, or moving to energy sources less impacted by the Middle East conflict.

Among the primary alternative sources is Russia. Asia is expected to import a record volume of fuel oil from Russia in March, ​ after the U.S. government eased sanctions in order to reduce the pressure in international oil markets, with Singapore and Malaysia among the top recipients, according to Reuters. The Philippines and Indonesia are also considering importing fuel from Russia.

Nations including the Philippines and Thailand have increased coal-fired power and reduced activity at LNG-fired power plants, in light of the constrained LNG supply from Qatar and other Gulf nations. Vietnam’s national power utility told Reuters last week that it is also negotiating a coal supply in order to conserve LNG. The Thai government is also increasing the ratio of biofuels blends from 7 to 10 percent, while Indonesia is accelerating a biodiesel program that blends 50 percent palm-oil-based biodiesel with 50 percent conventional diesel.

As the Iran war nears the end of its third week, the price shock is now beginning to have significant impacts at the petrol pump. Fuel shortages have been reported in Laos, Cambodia, Myanmar, and Thailand, where some shops have reportedly put up “out of stock” signs and restricted sales.

Conflict-induced shortages are also beginning to reverberate through the region’s supply chains. Fertilizer makers in Malaysia are suspending new orders as supply-chain disruptions and feedstock shortages stemming from the Middle East ​conflict drive up raw material prices. This threatens to raise output costs for the country’s producers of palm oil, which could in turn have cascading effects through global supply chains. The country’s semiconductor firms are also concerned about disruptions in helium supplies, although this has yet to impact operations.

In Vietnam, where petrol prices have risen by around 30 percent and diesel prices by about 40 percent since the start of the Iran war, the government has encouraged people ​to work from home to ​cut fuel consumption. The country also faces potential flight reductions from next month after China and Thailand halted exports of jet fuel due to the war. The Philippine Senate granted President Ferdinand Marcos Jr. emergency powers to temporarily suspend or reduce excise taxes on oil in order to cushion the impacts of the price shock.

In Thailand, where Anutin Charnvirakul was yesterday reappointed as prime minister, the fuel shortage is spreading across the country, impacting the transport, tourism, and agriculture sectors. Fishermen are stuck at docks because of surging diesel prices, and farmers are struggling with diesel shortages and fertilizer hoarding. Operators of tourist boats in Phuket have been forced to hike their fees, while in Ayutthaya, the Thai Inquirer reports, “the Ayutthaya Elephant Palace & Royal Kraal has switched from trucks to walking elephants to conserve diesel.”

Significant stresses are likely to be felt first of all in the region’s least developed countries: Cambodia, Laos, Timor-Leste, and Myanmar. Cambodia, which experienced shortages of petrol last week, has been forced to import more fuel from suppliers in Singapore and Malaysia to make ‌up for supply shortfalls following China’s fuel export ban, and a similar move by Vietnam. Fuel shortages have been reported in Laos, where motorists have lined up for hours to fill their vehicles. The situation in Timor-Leste is reportedly stable. While motorists have been hit by rising fuel prices, the fuel importer Esperança Timor Oan  has assured the public that the country has “sufficient fuel reserves to supply public and private transport” for the next four........

© The Diplomat