How the Israel-Iran Conflict Exposes Asia's Energy Vulnerabilities

Asia's Energy Dependence and Vulnerability

Hanoi: The ongoing conflict between Israel and Iran has underscored Asia's reliance on oil and gas from the Middle East, revealing a significant vulnerability due to the slow transition to renewable energy sources. The Strait of Hormuz, a crucial maritime route, is pivotal as it facilitates approximately 20% of global oil and liquefied natural gas (LNG) shipments, with four nations—China, India, Japan, and South Korea—accounting for 75% of these imports.

According to research from Zero Carbon Analytics, Japan and South Korea are at the highest risk, followed by India and China, all of which have been sluggish in adopting renewable energy solutions.

In 2023, renewable energy constituted merely 9% of South Korea's energy mix, significantly lower than the OECD average of 33%. Japan, on the other hand, was the most fossil fuel-dependent nation among the G7 countries.

While a ceasefire in the Israel-Iran conflict has temporarily eased tensions, experts assert that the best strategy to mitigate future risks is to reduce dependency on imported fossil fuels and expedite the transition to clean, domestic energy sources.

Murray Worthy, a research analyst at Zero Carbon Analytics, emphasized the importance of recognizing these risks in terms of energy and economic security.

Japan and South Korea's energy vulnerabilities are particularly concerning. Although China and India are the largest consumers of oil and LNG passing through the Strait of Hormuz, Japan and South Korea face greater risks.

Japan relies on imported fossil fuels for 87% of its energy needs, while South Korea's dependence stands at 81%. In contrast, China and India depend on fossil fuels for 20% and 35% of their energy, respectively, as reported by Ember, a global energy think tank.

The combination of energy reliance and the volume of imports through the Strait highlights Japan's significant vulnerability, according to Worthy.

Japan imports three-quarters of its oil and over 70% of South Korea's oil through the Strait, with both nations prioritizing diversification of fossil fuel sources over a shift to renewable energy.

Japan's energy strategy includes plans to derive 30-40% of its energy from fossil fuels by 2040, alongside the construction of new LNG facilities. South Korea aims to reduce its reliance on LNG from 28% to 25.1% by 2030 and further to 10.6% by 2038.

To achieve their net-zero carbon emissions targets by 2050, both countries must significantly increase their solar and wind energy usage, requiring an annual addition of approximately 9 gigawatts of solar capacity through 2030, as per Agora Energiewende. Japan also needs to add 5 gigawatts of wind energy annually, while South Korea requires about 6 gigawatts.

Japan's energy policies are inconsistent, as it continues to subsidize fossil fuels and increase LNG imports while facing regulatory challenges in offshore wind development. Despite having climate goals, it lacks firm deadlines for reducing emissions in the power sector.

Tim Daiss from APAC Energy Consultancy criticized Japan's efforts, stating that they have not done enough and their strategies are suboptimal.

In South Korea, low electricity prices deter investment in solar and wind projects, which Kwanghee Yeom from Agora Energiewende identifies as a significant barrier to renewable energy adoption. He advocates for fair pricing and stronger policy support to accelerate clean energy initiatives.

China and India have taken steps to insulate themselves from global energy price fluctuations and trade disruptions.

In 2024, China led the world in wind and solar capacity growth, with increases of 45% and 18%, respectively, while also enhancing domestic gas production despite dwindling reserves.

By generating more electricity from clean sources and increasing domestic gas output, China has managed to lower its LNG imports, although it remains the largest oil importer globally, with about half of its imports sourced from the Middle East, alongside significant supplies from Russia and Malaysia.

India, heavily reliant on coal, plans to boost coal production by 42% by 2030, but its renewable energy sector is expanding rapidly, adding 30 gigawatts of clean power last year, enough to supply nearly 18 million homes.

By diversifying its energy suppliers with increased imports from the US, Russia, and other Middle Eastern nations, India has somewhat mitigated its risks, according to Vibhuti Garg from the Institute for Energy Economics and Financial Analysis.

However, she cautioned that India must significantly enhance its renewable energy efforts to achieve true energy security.

The potential for a blockade of the Strait of Hormuz poses risks for other Asian nations as well, making the development of renewable energy capacity essential for mitigating the volatility associated with oil and gas imports, as noted by Reynolds from the Institute for Energy Economics and Financial Analysis.

Southeast Asia has transitioned to being a net oil importer, with demand in Malaysia and Indonesia surpassing supply, as reported by the ASEAN Centre for Energy in Jakarta. Although the ten-member ASEAN still exports more LNG than it imports due to production from Brunei, Indonesia, Malaysia, and Myanmar, rising demand indicates that the region will become a net LNG importer by 2032, according to Wood Mackenzie.

The growth of renewable energy is not keeping pace with increasing demand, and oil and gas production is declining as older fields deplete.

The International Energy Agency has warned that ASEAN's oil import costs could escalate from USD 130 billion in 2024 to over USD 200 billion by 2050 if stronger clean energy policies are not implemented.

Transitioning to clean energy is not only crucial for climate change mitigation but also vital for national energy security,” Reynolds concluded.