Governments across Asia are working to avoid a second major energy crisis in six months as a new maritime blockade threatens the supply of Middle Eastern oil. Nations including Japan, the Philippines, Thailand, and South Korea, which rely on the Middle East for up to 90% of their oil imports, are currently scrambling to secure resources following the Houthi-led blockade of Saudi Arabian shipping in the Bab al-Mandab strait, the southern entrance to the Red Sea.
Many of these countries are already struggling to recover from the effective closure of the strait of Hormuz in March, which forced regional governments to compete for dwindling supplies. Ahmed Helal, from the Asia Group thinktank, warned that global reserve capacity is extremely low, noting that countries are essentially scraping at the bottom of the barrel with very little inventory remaining.
The economic impact is already visible, with countries like Japan spending billions on fuel subsidies to stabilize petroleum costs, while South Korea has moved to extend fuel tax cuts. Rising import costs have fueled inflation, putting significant pressure on the budgets of major regional economies like Indonesia and Japan. The situation is further complicated by the fact that Saudi Arabia had previously pivoted to the Red Sea port of Yanbu—which handles over 70% of Riyadh’s crude exports—to mitigate the earlier closure of the strait of Hormuz. With the Red Sea now under threat, this critical lifeline is being jeopardized.
Shipping companies are beginning to take the threat seriously, as evidenced by a decline in vessel transit through the Bab al-Mandab strait to its lowest level in months. Matt Smith, a commodity research director at Kpler, noted that the change in tanker behavior indicates the industry is responding to the danger. War risk premiums for tankers have reportedly doubled over the past week, adding hundreds of thousands of dollars to voyage costs, expenses that will eventually reach consumers.
Refiners in Japan and South Korea are reportedly considering rerouting cargoes north through the Suez canal toward the Mediterranean and around Africa. However, this strategy is logistically complex and costly. Because fully loaded VLCC tankers are too large for the Suez canal, they must unload half their cargo in the Red Sea, transport it via Egypt’s Sumed pipeline to the Mediterranean, and reload after the canal transit. Furthermore, taking the route around the Cape of Good Hope would more than double the transit time for most importers.
With the Houthis targeting at least two Saudi tankers last week and launching attacks on Saudi energy infrastructure this week, the crisis shows no sign of immediate resolution. As resources dwindle, experts suggest that governments may face difficult choices, including business closures or mandatory consumption reductions. While nations like the Philippines, India, and South Korea are bolstering their strategic reserves, the current instability has renewed the urgency for a transition to renewable energy. For now, however, importers are looking for supplies further afield, with Russia expected to benefit from the ongoing chaos.
Those costs will inevitably be passed on to consumers in Asia, who are already reeling from the energy shock imposed by the US-Iran war.
“Businesses are going to have to close. You might have attempts to reduce consumption at peak hours. And you might have, in some extreme cases, higher risk of default,” says Helal.
