Asia’s Energy Crisis: Ramifications of the Iran War and Fossil Fuel Dependency

PHOTO: “Out of diesel” sign at a petrol station in Thailand (2026), Chainwit on Wikimedia Commons

The energy crisis across Asia due to the Iran war has exposed the region’s fossil fuel dependency and vulnerability to geopolitical shocks, and should serve as a wakeup call for countries to transition towards renewable energy. Fossil fuels are finite resources under the control of certain countries where conflict and supply disruptions cause volatile price increases, and are also the main sources of greenhouse gas emissions, the cause of climate change.

Unlike fossil fuels, renewables are derived from inexhaustible sources, including sunlight, water and wind, and can be generated domestically at ever-cheaper costs due to technological advancements and increased manufacturing capacity, with 91% of new renewable energy projects being cheaper than fossil fuels in 2024, all while emitting little or no greenhouse gas. Renewable energy is the self-sufficient and sustainable solution that strengthens Asia’s energy security and shock resilience by reducing dependence on imported fossil fuels.

The Policy Myopia of Fossil Fuel Dependency

The Strait of Hormuz is the chokepoint that connects the Persian Gulf to international waters, making it vital for oil-exporting Gulf states with no alternative maritime route. Approximately 38% of global crude oil and 29% of global liquified natural gas (LNG) shipments passed through the strait the week prior to US-Israel military strikes against Iran on February 28. In retaliation, Iran blockaded and closed the Strait of Hormuz, causing the largest disruption to global oil supply in history. 

The Asia-Pacific region has been impacted the hardest since 84% of the crude oil and 83% of the LNG that passed through the Strait of Hormuz in 2024 was estimated to have gone to Asian markets. Countries such as Japan, India and the Philippines, who are reliant on importing oil from the Gulf states, are currently experiencing the firsthand impacts of fuel shortages and increased transportation costs: price hikes and cuts to industrial production, declining tourist numbers and more travel cancellations.

While the Iran war was instigated by the US and Israel, the predicament that many Asian countries are embroiled in is partly of their own doing by depending on imported oil and gas from a turbulent region where conflict has been responsible for past supply disruptions numerous times in the 20th and 21st centuries. The energy security of many affected Asian countries is effectively dictated by foreign events that they have no influence over, and is emblematic of policymakers prioritising short-term economic gains and not accounting for external shocks. Myopic energy policy has thus jeopardised economic security, as Asia’s economies are predicted to lose between US$97 billion to US$299 billion while almost 9 million people risk falling into poverty if the Iran war continues.

Governments in the region have responded by imposing rations, providing fuel subsidies, diversifying oil/LNG sources and burning more coal, but these measures are respectively short-term, fiscally unsustainable, face logistical issues and renege on net-zero goals. Current responses do not address the core issue of import dependency whilst compromising on environmental security, with fuel subsidies being  cost-inefficient measures that perpetuate consumer demand while coal burning emits the most carbon dioxide out of all forms of fossil fuel.

The Philippines’ Price of Inaction

The Philippines is arguably the country hit hardest by the Iran war, being the first country to declare an energy crisis. This transpired due to several factors. Firstly, 95% of the Philippines’ crude oil passed through the Strait of Hormuz in 2024, and its closure cut off the Philippines from virtually its entire supply. Secondly, the Philippine economy is heavily reliant on imported oil whilst renewable energy comprises only 10.19% of total energy consumption in 2022. Thirdly, the Philippines’ oil reserves were estimated to last for 45 days, much lower compared to the minimum of 90 days worth of oil reserves required of International Energy Agency (IEA) member countries. Lastly, as a developing country with comparatively low wages, the soaring fuel prices have become unaffordable for many households, causing economic activity to decline.

The Iran war has hit developing countries of South East Asia especially hard due to their structural dependence on oil and unpreparedness for supply disruptions, with the Philippines being a clear case of the socio-economic repercussions of myopic energy policy. 

PHOTO: Coal mine in Singrauli, known as the energy capital of India (October 6 2020), Kuber Patel on Wikimedia Commons

India’s Energy Crossroad

India is also grappling with the socio-economic impacts of the Iran war. The country imports roughly 85% of its crude oil and 50% of its LNG, and approximately half of India’s crude oil and 60% of its LNG passes through the Strait of Hormuz. The supply disruption of LNG has impacted India’s manufacturing industries significantly, forcing the Indian steel and ceramic industry who rely on LNG for production processes, to cut production or lay off workers. Furthermore, despite government assurances that stockpiles are sufficient, India has experienced panic buying of petrol, diesel and cooking gas, placing pressure on supply chains and unwittingly increasing the risk of fuel shortages.

The Indian government’s response encompasses short-term relief like lowering fuel taxes and direct budgetary transfers, as well as switching from LNG to coal for electricity generation. The latter response fails to reduce India’s dependence on imported fossil fuels, with the country importing 20.5% of its coal in 2024, a figure bound to increase in lieu of greater coal demand. The government’s default to coal faces the same issues of import reliance as oil and LNG, whilst delaying the country’s progress in expanding domestic renewable energy production. India’s situation is indicative of the urgent need to divest from fossil fuels and transition fully to renewable energy in order to reduce vulnerability to supply disruptions and improve energy resilience.

Japan’s Flawed Bet on Nuclear

Japan is a fossil fuel guzzling country, with imported oil, coal and natural gas having a combined 83.5% share of Japan’s energy supply in 2024 compared to renewable energy’s 9.26% share. The country is almost as reliant as the Philippines on imported oil from the Gulf states, with 93% of Japan’s oil passing through the Strait of Hormuz. However, Japan’s oil stockpiles are predicted to last 254 days; so while Japan is in no immediate danger of fuel shortages, increased oil prices threaten to widen Japan’s trade deficit, weaken the yen and lead to further inflation. Additionally, although Japan imports just a fraction of its LNG from the Middle East, global price increases have meant electricity bills have spiked, exacerbating Japan’s macroeconomic pressures. 

In response, Japan is seeking to revive its nuclear power program that was scrapped after the 2011 Fukushima nuclear accident, which was responsible for Japan’s increased reliance on fossil fuels for electricity generation. Delays in restarting reactors due to safety concerns has meant that Japan is lagging behind on generating enough nuclear power to significantly substitute fossil fuels. Furthermore, the return to nuclear energy has actually curtailed renewable energy generation as the capacity of power lines are exceeded, and diverts investment away from renewable energy projects. The revival of nuclear power does not improve Japan’s economic resilience to geopolitical shocks because it fails to address the underlying issues of fossil fuel import dependency and vulnerability to volatile prices, whilst entrenching the underutilisation of renewables. 

China’s Success Story

PHOTO: Windmill farm in Jiangxi, China. A common sight throughout the country, Cai Fang on Unsplash

In contrast to Japan, China’s two decades of significant investment in renewable energy technology and electrification of the country’s economic sectors has dampened the impact of the oil supply disruption by providing energy self-sufficiency. The country’s renewable energy transition and widespread adoption of electric vehicles has lowered oil demand which, alongside massive strategic petroleum reserves, contributes to China’s relative resilience to the economic shocks from the Iran war. Additionally, China stands to gain as the world’s largest producer of renewable technology, as Asian countries increasingly seek to expand their own renewable energy production. Although China’s coal use remains extensive, China’s energy transition has demonstrated that building shock resilience and reducing oil dependency is possible with long-term policies and strategic planning. 

Uncertain futures

As the Iran war continues and the Strait of Hormuz remains closed, impacted Asian countries will have to go beyond short-term measures by divesting from fossil fuels and transitioning to renewable energy in order to reduce vulnerability to geopolitical shocks and volatile import prices. Developing countries like India and the Philippines have already experienced the socio-economic repercussions of their dependence on imported fossil fuels, while wealthier countries such as Japan risk facing similar effects as the conflict continues and fuel reserves deplete. 

The silver lining of the Iran war dragging on is that renewables are being seriously considered by more countries, albeit for solely utilitarian reasons rather than environmental. China’s economic resilience is a clear example of the security benefits of investing in renewable energy, and provides a model to emulate for impacted countries weighing their policy options. The chance for Asia to achieve long-term energy, economic and environmental security by transitioning from imported fossil fuels to renewable energy is more apparent than ever, and it is vital that governments recognise this opportunity and not squander it by returning to the same old myopic policies when the Iran war ends.