Why Southeast Asia is Racing to Secure Russian Oil Amid Global Energy Crisis

Intensifying Competition for Russian Crude

Bangkok: As the energy crisis escalates due to the ongoing conflict involving the US and Israel against Iran, Asian countries are increasingly vying for Russian crude oil, which has become a critical resource as approximately 20% of the global oil supply has been disrupted.

The Strait of Hormuz, a vital shipping route for oil, has seen significant disruptions, particularly affecting Asia, which has been hit hardest by these energy shocks. The situation worsened over the weekend when Iran-aligned Houthi rebels intensified their involvement in the conflict, posing additional risks to maritime shipping.

In response to the global oil supply challenges, the US has temporarily lifted sanctions on Russian oil shipments already en route, initially benefiting India and subsequently extending to other nations.

With demand surging in Asia, Russia is reaping substantial financial rewards. However, experts caution that there are limits to how much crude oil Moscow can export, as it is already operating near its previous export peak.

Moreover, the ongoing war in Ukraine and recent drone strikes on Russian energy facilities by Ukraine are further complicating Russia's export capabilities.

For many Asian nations, the window of opportunity to secure Russian oil is rapidly closing, according to Muyu Xu, a senior analyst at Kpler, a global trade data firm.

She emphasized, "The real issue is the availability of cargo in this market."

Surge in Interest from Southeast Asia

Prior to the conflict in Iran, China, India, and Turkey were the primary importers of Russian oil, often disregarding Western sanctions in exchange for favorable pricing.

The sanctions imposed by the US and the European Union aimed to economically isolate Russia following its invasion of Ukraine.

However, the recent waiver of US sanctions has sparked a surge of interest in Russian oil among energy-dependent Southeast Asian nations. This month, countries like the Philippines, Indonesia, Thailand, and Vietnam have expressed renewed interest in importing Russian crude.

The Philippines, a long-standing ally of the US, made its first Russian crude import in five years shortly after declaring an energy emergency.

As these nations seek to secure supplies, they will face competition from China and India, which are vying for approximately 126 million barrels still in transit, as reported by Kpler.

India typically requires between 5.5 million to 6 million barrels of oil daily.

Analysts predict that Russia is unlikely to significantly increase its exports. In March, the flow of oil was around 3.8 million barrels per day, slightly up from February's 3.2 million but still below the mid-2023 peak of 3.9 million.

Xu noted that the current crisis highlights the volatility of geopolitics, often influenced by a few key decision-makers, complicating long-term planning for nations. She stated, "At this moment, the priority is to secure your supply, with other considerations taking a backseat."

Countries in Southeast Asia are likely hoping for an extension of the US sanction waiver beyond April, as their options remain limited.

Challenges in the Philippines

In the Philippines, airlines are contemplating fuel rationing, and financial assistance is being expedited for those most affected, such as transportation workers. Long lines at gas stations have become a common sight.

With a population of 117 million, the Philippines serves as an early indicator of the challenges facing Southeast Asia.

Before the conflict, the Philippines relied on the Middle East for nearly 97% of its seaborne oil imports, according to Kpler data. The declaration of an energy emergency represents a significant escalation in the country's energy challenges, as noted by Kairos Dela Cruz from the Institute for Climate and Sustainable Cities.

"This situation will undoubtedly push more people into poverty," he remarked.

To mitigate energy shortages, the Philippines has resumed importing crude oil for the first time since 2021, with other Southeast Asian nations considering similar measures.

During a visit to Russia on March 23, Vietnamese Prime Minister Pham Minh Chinh secured agreements on oil and gas cooperation, alongside discussions on nuclear energy, as rising diesel prices begin to impact Vietnam's manufacturing sector.

In Indonesia, officials have stated that "all countries are potential partners" as they work to bolster reserves, including Russia and the small oil-rich nation of Brunei, according to Indonesian Energy Minister Bahlil Lahadalia.

"When options are limited, all possibilities are on the table," remarked Putra Adhiguna from the Jakarta-based Energy Shift Institute.

While Thailand is also exploring similar options, it is not facing the same level of urgency as the Philippines, according to Jitsai Santaputra from The Lantau Group in Bangkok. She indicated that Thailand is likely to adopt a wait-and-see approach as long as the situation remains manageable.

However, the situation is worsening.

On March 26, fuel prices in Thailand surged after the lifting of caps and subsidies, with most fuels increasing by about 20 US cents per liter, and diesel prices rising approximately 18%, impacting industries and transportation and potentially driving up the cost of other goods.

China and India: Key Players

Despite Western sanctions, China and India were significant customers of Russian crude oil prior to the US and Israel's military actions against Iran on February 28.

India gained an additional advantage by having US sanctions on Russian crude lifted about a week before other nations.

"They seized the opportunity and secured a substantial number of cargoes," Xu noted. By the time US President Donald Trump permitted other countries to purchase, it was "already a bit too late, as most of the cargo had already been ordered" by China and India.

Even with this head start, Kpler data indicates that India's crude oil imports from Russia may not sufficiently compensate for the shortfall from the Middle East.

In March, India's imports from Russia surged to approximately 1.9 million barrels per day, up from about 1 million barrels before the Iran conflict. Prior to that, India imported around 2.6 million barrels daily from the Middle East.

This may not be adequate, especially with the peak summer energy demand approaching, driven by travel, agriculture, and freight needs, particularly as emergency oil stockpiles dwindle, according to Duttatreya Das from the think tank Ember. He added that short-term purchases only cover a few days of supply, making it challenging to fill any gaps without additional shipments from the US or Canada.

"I am uncertain how the shortfall will be addressed," he stated.

Despite being the fifth-largest crude producer and promoting clean energy, China continues to have a robust demand for oil from its 1.4 billion population. However, it has also built a substantial oil reserve.

China reportedly holds around 1.2 billion barrels of onshore crude, which Kpler estimates could cover nearly four months of its total seaborne crude imports, providing a buffer against the immediate impacts of the conflict.

According to Kpler, China sourced about 13% of its seaborne crude from Iran and roughly 20% from Russia, as per financial data from LSEG.

With ample reserves and significant financial resources, analysts suggest that some Russian shipments destined for China could be redirected to countries in greater need.

"Russia stands to gain significantly from this entire conflict," stated Sam Reynolds from the US-based Institute for Energy Economics and Financial Analysis. Given the energy crisis, the speed of delivery, and temporarily reduced prices, he noted that Asia has "a much stronger incentive to import Russian oil."

"While there may be a moral dilemma, it reflects the reality that countries will do whatever is necessary to safeguard their energy security," he concluded.