[U.S.-Iran War] Energy Shock Triggered by the Strait of Hormuz Blockade Set to Fundamentally Reconfigure Asia’s Oil Dependence

Vulnerability of the fossil-fuel supply chain and the energy transition
South Korea and Japan also put security ahead of the environment, temporarily shelving carbon-neutrality policies
Expansion of palm oil biodiesel distribution gives rise even to energy “barter” deals

The shock unleashed by Iran’s blockade of the Strait of Hormuz is rattling energy policy across Asia. As natural gas supplies shrink and gas prices surge, countries across the region are simultaneously expanding coal-fired power generation while mobilizing every available alternative procurement strategy, including increased nuclear generation, wider biofuel distribution, eased regulations on lower-grade fuels, energy swaps and inventory resales. This trajectory is expected to move beyond a short-term phase of supply-demand dislocation and serve as a catalyst for a broader transition toward reduced oil dependence and stronger energy self-sufficiency.

Coal Emerges as the Alternative Amid Soaring Gas Prices

According to the Financial Times on April 1 (local time), Asian gas prices have jumped more than 60% since the outbreak of the Iran war, as the Strait of Hormuz has effectively been paralyzed. Middle Eastern liquefied natural gas (LNG) passing through the Strait of Hormuz accounts for 20% of total supply. The roughly 140 billion cubic meters of LNG supply lost because of the war is nearly double the 75 billion cubic meters lost immediately after the outbreak of the Russia-Ukraine war in February 2022.

By contrast, Newcastle futures, the benchmark price for coal in Asia, have risen by only about one-third this year, making coal an increasingly attractive substitute. Anthony Knutson, head of the global coal market at Wood Mackenzie, said, “Asian countries are turning on the tap for coal-fired power generation to offset soaring gas prices and supply risks,” adding, “The Iran war’s shock to energy supply is greater than what we saw during the Russia-Ukraine war.” Fatih Birol, executive director of the International Energy Agency (IEA), likewise projected that “coal use will increase, at least temporarily, in both the power and industrial sectors.”

In practice, Reuters reported that the Indian government is reviewing a plan to run all coal-fired power plants at full capacity ahead of the summer season, when cooling demand surges. To that end, it is also said to be considering invoking emergency provisions that would mandate maximum electricity generation at thermal power plants using imported coal. India has a number of coal-fired plants fueled by imported coal, with total generation capacity amounting to 17 gigawatts (GW).

Power generation using imported coal is more expensive than generation using domestic coal, but if the emergency provision is invoked, a government-appointed panel would determine the electricity price paid to the plants based on imported coal prices. India, which has typically sourced more than 40% of its crude oil imports and about 90% of its liquefied petroleum gas (LPG) imports from the Middle East, is now facing severe difficulties in securing oil and gas supplies because of the war. As a result, households unable to obtain LPG have resorted to firewood for cooking, while many restaurants have shut down and people have fought over LPG cylinders, underscoring a nationwide fuel crisis.

South Korea and Japan Also Return to Coal

The South Korean government has also lifted the seasonal utilization cap of 80% for coal-fired power plants, a measure it had maintained to protect air quality. It has also decided to increase nuclear power generation to offset LNG supply volatility. The move comes even as President Lee Jae-myung had pledged to phase out most coal-fired generation facilities by 2040. South Korea depends on imports for 98% of its fossil-fuel consumption. At present, roughly 70% of the crude oil South Korea imports and about half of its naphtha pass through the Strait of Hormuz. That is why turmoil in the Middle East can translate directly into higher costs for South Korea’s refining, petrochemical, logistics and power sectors.

Japan, too, under the leadership of Prime Minister Sanae Takaichi, has decided to suspend for one year restrictions on aging coal-fired power plants. The Japanese government had introduced measures to reduce the utilization rate of those facilities—which account for just under 20% of all coal-fired plants—to 50% or less in principle, while encouraging equipment replacement or shutdowns. But as Iran has effectively blockaded the Strait of Hormuz and crude procurement has become more difficult, Tokyo has opted to raise coal use, given the country’s lower reliance on the Middle East for coal. Japan depends on the Middle East for more than 90% of its crude oil imports, but sources 74.8% of its coal imports from Australia. Japan’s Ministry of Economy, Trade and Industry estimates that the measure could replace 500,000 tons of LNG.

Thailand and Bangladesh have likewise raised coal plant utilization rates to the highest possible levels, while Indonesia, the world’s largest coal exporter, has decided to allow mining companies to boost coal production. Indonesia imports one-third of its oil demand, 20% of which has traditionally come from the Middle East. As passage through the Strait of Hormuz becomes more difficult, the government is fighting to secure new supply sources, even reviewing imports of U.S. LPG. Similar 움직ements are being detected not only in Asia but also in the West. Germany, which has struggled after Russian gas imports were cut off by the Russia-Ukraine war, is delaying its self-declared coal exit plan through 2030 and bringing coal-fired power plants back online. The United States has also not only restarted coal plants that had been slated for closure, but is moving to build a new coal-fired power plant for the first time since 2013.

All-Out Push to Reduce Import Dependence Through Palm Oil-Based Fuels

Some countries are also accelerating the spread of alternative fuels. On March 30, the Thai prime minister’s office announced plans to expand the use of B20 biodiesel containing 20% Thai palm oil. The goal of B20 distribution is to reduce dependence on imported fuels, ease cost pressures on the transport sector and industrial supply chains, and support the agricultural sector by creating stable demand for domestically produced crops. In particular, it is expected to help reduce energy-cost burdens for operators of commercial heavy vehicles and construction equipment. To support the effort, Thai authorities have decided to subsidize B20 so that it remains about $0.15 per liter cheaper than regular diesel.

Indonesia is also pushing this year to introduce B50 biodiesel blended with 50% palm oil. As the world’s largest palm oil producer, Indonesia has mandated since 2018 that biodiesel blended with palm oil be used in all diesel vehicles and machinery in order to increase palm oil consumption. The blending ratio began at 20%, rose to 35% in 2024, and increased to 40% from 2025. The Indonesian government had originally planned to introduce B50 this year but postponed it after concluding that diesel supply conditions were manageable. But as the Iran war has disrupted energy supply, Jakarta has once again pulled out the B50 card.

Vietnam also recently moved up the introduction of E10 gasoline containing 10% bioethanol from early June to next month. Elsewhere, the Philippines has shifted to Euro 2-standard fuel with a sulfur-content ceiling of 500 ppm, ten times the previous level for air pollutants, while Australia has temporarily permitted the use of lower-grade petroleum products with sulfur content rising to 50 ppm, five times the previous standard.

Energy Barter and Inventory Resales Also Gain Traction

National efforts to cushion the energy shock do not stop there. Energy-swap arrangements in the form of “barter” are also emerging in various places as governments try to break through acute fuel shortages. Indonesian President Prabowo Subianto visited Tokyo on March 29 and signed long-term cooperation agreements with Japan covering oil, gas and geothermal power generation. More immediate transactions are also under discussion. Joko Siswanto, head of Indonesia’s upstream oil and gas regulator SKK Migas, told Reuters that the two sides are discussing a swap under which Indonesia would provide additional LNG to Japan in exchange for LPG.

Japan is also pursuing similar barter arrangements with other countries. INPEX, Japan’s state-backed energy company, is currently known to be discussing a deal with India to swap LPG for naphtha and crude oil. According to a Japanese government official, Vietnam has also requested Japanese support for energy supplies, while the Philippines is already said to have received diesel from Japan. Resource-poor Japan depends on the Middle East for roughly 95% of its crude oil and 11% of its LNG, but retains considerable stockpiles, giving it some capacity to defend its supply chain.

China, the world’s largest LNG importer, is going a step further by reselling accumulated inventories to neighboring countries, generating enormous profits while tightening its grip on a pivotal link in the global energy supply chain. According to energy news outlet OilPrice, China has resold 1.31 million tons of LNG so far this year, setting a new all-time record. The notable point is that China’s resales are serving as a buffer for the global market. Ordinarily, when Europe absorbs LNG to replace Russian gas, Asian prices surge in tandem. But with China stepping back from the purchasing competition and instead releasing cargoes into the market, it is helping ease supply pressure for Asian countries while curbing excessive price competition with Europe.

In this way, the energy crisis triggered by the Iran war is moving beyond a short-term supply shock and setting off sweeping changes in national energy strategies. One energy-security expert said, “After experiencing the Iran crisis on top of the Russia-Ukraine war, the importance of energy self-sufficiency and security has once again come into sharp relief,” adding, “Asian countries in particular will have little choice but to move in earnest toward diversifying procurement sources and reconfiguring their energy mix.”