APPEC: Hormuz crisis highlights Asia's need for larger oil reserves, closer supplier ties

The Strait of Hormuz crisis has highlighted the need for Asia to make energy security the foundation of its policies, maintain adequate reserves of crude oil, refined products and LPG and foster greater collaboration with global partners, said Atul Arya, chief energy strategist at S&P Global Energy, during APPEC in Singapore on Sept. 9.

"The Hormuz crisis is a powerful reminder that energy security must be the foundation of sound energy policy for every country," Arya said during the conference. "In addition, cooperation and collaboration with partners and neighbors will enhance energy security."

He added that China and Japan have managed the crisis better than any other countries in Asia, thanks to their foresight, planning and preparation in building sufficient reserves of critical commodities, including crude oil, refined products and natural gas.

"Although both Japan and China are highly dependent on oil from the Middle East, their strategic reserves and commercial stocks have cushioned the countries from the supply shock," Arya said. "Other large importers of crude oil from the Middle East, including India, Thailand and Pakistan, have very small strategic stocks."

"These and other countries in similar situations need to build larger reserves of key commodities. They also need to diversify supply sources. These actions will require investment and may potentially increase energy costs. However, it will be a small price to pay for increasing energy security," he added.

Strengthening collaboration

Arya said collaboration in Asia's energy transition cannot remain aspirational. It must be specific, operationalized, cross-sectoral and realistic, involving governments, corporations, financiers and technology providers.

"This crisis presents an opportunity for Asia to double down on technologies that can better utilize domestic resources for long-term supply security. This isn't necessarily about accelerating the energy transition purely for climate goals, but primarily about strengthening long-term supply security," he said.

On the demand side, promoting electrification across sectors can shift reliance away from fuel imports, while robust energy-efficiency programs can help manage demand, he added. On the supply side, markets with domestic coal resources, such as India and China, may use more domestic coal than previously anticipated.

"In all countries, building out domestic resources, including wind, solar, battery, nuclear and geothermal, will also help reduce import dependency. Additionally, countries should ensure regulatory and fiscal systems that encourage new oil and gas development," Arya said.

He added that Asian economies rely on resilient energy systems that are affordable, reliable and secure amid evolving risks. Resilience in these markets is built on diversified energy systems — a pragmatic mix of renewables, gas, coal, hydropower and emerging technologies such as hydrogen and carbon capture, utilization and storage.

"Policymakers face a balancing act: reducing emissions without compromising affordability, reliability and industrial competitiveness. There are several actions Asian countries can take on their own and with partners," Arya said.

Impact on Asia

Premasish Das, executive director for oil analytics at S&P Global Energy CERA, said the oil market is moving from crisis mode into a contested recovery phase, but it is still far from returning to normal.

"Asia is bearing the brunt of the disruption because the region imports about 80% of the crude it consumes, making it particularly exposed to disruptions in Middle Eastern supply," Das said.

According to CERA, Middle Eastern crude oil production is expected to remain, on average, about 4 million barrels/day below prewar production levels through 2027.

"That leaves refiners across Asia short of feedstock and forces refinery throughput lower than expected. China accounts for a large share of the reduction, but refiners across the region face the challenge of securing enough crude," Das said.

Vitol CEO Russell Hardy said at APPEC on Sept. 8 that while Europe and the US are grappling with high oil prices, the situation in Asia is far more severe due to outright shortages.

However, China has absorbed some of the shock through its oil inventories and surplus refining capacity, Hardy said, adding that Beijing has adopted a reasonably conservative approach to both demand and crude oil runs to ensure energy security.