How Southeast Asia Weathered the Energy Security Shock Caused by the Iran War

TAG Senior Advisor Mira Rapp-Hooper hosts TAG Managing Principal Jennifer Schuch-Page to explain why Southeast Asia’s energy security has been among the hardest hit by the war in Iran and the resulting Strait of Hormuz closure. With high dependence on imports and limited reserves, countries including the Philippines, Indonesia, and Vietnam face acute constraints, not just price spikes. Jenny and Mira discuss the emergency steps underway including rationing, demand management, curtailed flights. They also discuss why flows may take months to normalize even if a ceasefire holds, and what resilience will require: bigger stockpiles, diversified suppliers, faster renewables and electrification, and renewed momentum for nuclear.

What Comes Next with Mira Rapp-Hooper is produced by Rivan Dwiastono, executive produced by Lauren Dueck, with editorial input from Prashant Jha. It contains music by Cody Martin via Soundstripe. 

What Comes Next is a production of The Asia Group, and is powered by TAG AI, TAG's geopolitical decision engine for businesses.

Transcript

SPEAKER_00 0:00

In terms of countries that we're watching most closely, I'd say the Philippines, Indonesia, Vietnam, you know, kind of hit at the top of the list. Especially right now with the ceasefire, everyone is kind of holding their breath. It's a moment of relief, but a lot of uncertainty about how will this last.

SPEAKER_01 0:22

With the war in Iran now reaching into a multi-week affair and the question of whether or not a ceasefire will hold, very much an open one, the world has had its eyes on the ripple effects in energy markets of this ongoing conflict. Nowhere has the energy security crisis been more acute than in Asia and in particular Southeast Asia, where many nations have had to implement emergency measures as the possibility of continued closure of the Strait of Hormuz stretches out before them. I'm really looking forward to talking today to today's guest on what comes next. Jenny Shackpage is the managing principal at the Asia Group, where she leads the firm's energy and sustainability practice. Prior to her return to TAG, Jenny was a senior advisor to Special Envoy for Climate, John Kerry, at the U.S. Department of State. Let's give a listen. Jenny, thanks so much for joining us on what comes next. It's great to be here. Thanks, Maria. I've been really wanting to have this conversation with you for the last several weeks as we've been watching the conflict in Iran unfold. I'm sitting here today in Seoul, South Korea, where of course the question of energy security and how this conflict was going to affect Korea's energy supplies has been raging over the course of the last few weeks. But back at the Asia Group, you've been watching the question of how this conflict is roiling global energy markets like a hawk, and been leading our coverage and analysis of all of the ripple effects we've seen since this conflict has started to unfold. And while, of course, you know, we're keenly aware that much of Asia is highly dependent on Middle Eastern oil and gas and in particular on the Straits of Hormuz for their energy supplies and energy security. I think we've become keenly aware in just the last few weeks that in many ways, Southeast Asia is the most exposed to energy security concerns in an environment like this one. And while we're all watching to see whether a ceasefire negotiated between the United States and Iran might actually take hold, I'd love to take this opportunity to dig in with you on what we've learned over the course of the last few weeks about energy security and energy risk in Asia. And maybe we can start again with Southeast Asia. Studies suggest that most Southeast Asian countries hold just a few days, somewhere between 20 and 50 days of oil and LNG reserves. What have we learned since this conflict broke out over Iran about how exposed Southeast Asia is? And what countries have been feeling the sharpest pain in recent weeks?

SPEAKER_00 3:17

Yeah, thanks, Mira. It's a great question and something we've been tracking really closely at the Asia Group across the region and across products, you know, whether it's LNG, whether it's uh oil, whether it's refined products. Um, everything is, you know, being impacted differently. So I think what you hit on is really true that Southeast Asia is uniquely impacted, um, especially when it comes to oil and refined products. You know, the import dependency for each country has really varied. Um, and that really impacts how sensitive they are to the price shocks that we're seeing, as well as um, you know, sensitivity to you know full-on um, you know, access constraints and uh you know, has really highlighted the potential that this could cause for social and political stability. Um, and we're seeing countries across the region now, you know, in turn, um, put forward, you know, fairly aggressive policies to manage demand um and to really take control of the energy markets. So, in terms of countries that we're watching most closely, um, you know, I'd say the Philippines, Indonesia, Vietnam, you know, kind of hit at the top of the list. The Philippines imports 95% of its crude oil and didn't have petroleum reserves. Um, so, you know, the them, so similar to other countries, are implementing energy emergencies, rationing energy access, you know, reducing working days. Um, we've seen fiscal challenges in Indonesia where the fuel subsidies that they had before the crisis are now getting very expensive and they're having to ramp down industrial production. Vietnam similarly heavily reliant on crude and refined products, um, not as much as uh on LNG, but they're in turn getting very active in the demand management response measures.

SPEAKER_01 5:09

And say a little bit more about if you would, Jenny, you know, you you've um shared with us some of the emergency measures of the Philippines implemented. What have those emergency measures looked like in Vietnam? And in particular, as the world is watchfully waiting to understand whether some kind of ceasefire might actually take hold, how long should we expect Southeast Asia to remain in kind of a state of energy emergency while the world is still gripped by continued conflict uncertainty? My impression is that even with a ceasefire, you know, vessels that are already loaded may start to move again through the Straits of Hormuz, but to bring capacity truly back online and see a restoration of global energy flows that would allow these countries to return to something as business as usual is probably still a long way off. Is that right?

SPEAKER_00 5:59

Yeah, um I think that's fair to say. Um, you know, getting back to your first question, you know, Vietnam has taken steps um to um, you know, there, well, one thing, the countries are all very actively trying to negotiate bilaterally to get um get supplies through the straits. So we've seen that, especially among non-aligned countries. Um, and we've seen some um companies in Vietnam even announced that they are shelving plans for gas projects because they're they've been turned off by the high risk um uh and a range of other measures. On in terms of like the return to normal, um we have, especially right now with the ceasefire, everyone is kind of holding their breath. Um, it's a moment of relief, but a lot of uncertainty about how how will this last. Um so if it since the ceasefire was announced, we have seen a trickle of ships go through the strait. Um, that is because there are you know hundreds of ships that are just waiting to pass through. Um many countries are you know trying to get uh cargoes to to pass through. Um but there's the situation of you know just how long it takes for cargoes to get through and for you know a steady flow of transit to be moving through the Strait of Hormuz, which will require a lot of, you know, not just diplomacy with Iran, but also um, you know, signs of confidence from uh the private sector, from shipping, from insurance that this is a safe thing to do. But it will also require some of the production that had been impacted in the Gulf to be to recover and to get back online. So once you stop uh, you know, stop an engine, it takes a while for it to get going again. So we're gonna have to see this very gradually ramp up over the coming months. That is really on a best case scenario if the ceasefire holds and um product is able to start to begin to trickle through.

SPEAKER_01 8:09

So we could see, it sounds like Johnny, countries in Southeast Asia continuing to have to ration, take other emergency measures, or otherwise sort of pump the brakes, as it were, on the way um they're using um their energy supplies as they wait for that global production to come back online.

SPEAKER_00 8:28

Definitely. Um we're seeing you know demand management, we're seeing flights being curtailed because of concerns about jet fuel. Um, we're seeing, you know, shortages of oil is really impacting the road sector. And some of these are you know cautionary measures because they're anticipating uh that this the crisis could be prolonged and they will run into you know um limits of their supplies. Um uh, you know, countries like Indonesia, they have a little bit more. Um, and some of these measures are are cautionary, but yeah, they they're waiting to see um because they know the the political risk that uh actual shortages could cause.

SPEAKER_01 9:09

While they're waiting, Jenny, talk to me about how these potential shortages have factored into the ways that South Sea Southeast Asian partners are thinking about diversifying their energy supplies. Um, I've seen some reports that suggest um that over the course of recent years, anyway, um, many Asian nations were rethinking their reliance on coal-fire power. Um, while of course, there's been an ongoing and growing uh conversation about nuclear power across Asia, including Southeast Asia, in recent years. How do you think that the shock of the last few weeks is going to ripple through the way that Asian countries and in particular Southeast Asian countries make calculations about what the composition of their energy supplies should look like going forward?

SPEAKER_00 10:02

Yes, this is a great question. Um, countries are really this is impacting how countries maybe define and think about the concept of energy security. What does energy security mean? Um uh and a big, you know, the the best way to have secure energy is to have domestic control over that energy. And so countries are, as a first step, are looking at what indigenous energy sourcing options they have as a pathway to energy security. And you're you know totally right that um coal has seen um a real revival in the short term as a response measure. Many countries in the region already relied on coal for the power sector. Um, they had a lot of capacity because of you know recent years of trying to transition off-room capacity off from coal, they had some like excess backup capacity. So it's been easy to rely on. Um, and it's you know, it's cheap, it's politically defensible. Um uh at the same moment, we are seeing that nuclear receive an interesting boost. And that's that's very interesting because nuclear had been already uh sort of on the upswing. You know, folks have called it a renaissance, in uh, which we're seeing in the United States, and we're seeing it in Asia just as much. Um, you know, countries, you know, this is extending from Northeast Asia to countries like Japan and Taiwan, um, who are also looking at nuclear um more closely. Um but in Southeast Asia, you know, countries such as Malaysia, Vietnam, the Philippines, Indonesia, they've all taken measures over the last couple of years to prepare their regulatory systems and their institutions for um for integrating um nuclear into their power mix in their energy sector. So that momentum is already building. Um, but the crisis, you know, the urgency of this crisis has elevated nuclear as a nearer-term anchor for energy security. Um so over the last few weeks, even, you've seen um, you know, measures taken. Malaysia, they um, for example, um, a few weeks ago decided to launch a nuclear feasibility study, which is interesting. And that was explicitly prompted by the Iran shock. So it all sorts of um, it all points to this reassessment of nuclear as a stabilizing um, you know, because it is baseload clean power, it's particularly attractive. Um, and that uh furthermore is now domestically, um, a domestically anchored uh clean energy option. So for countries that don't have um, you know, indigenous um oil, gas, coal, um, it's a it is an attractive option.

SPEAKER_01 12:47

And beyond nuclear, Jenny, do you see Southeast Asian countries thinking more about other types of clean energy that they want to try to cycle into their mix? Or is this likely to accelerate any of those discussions, or is nuclear likely to be the biggest beneficiary of the shock?

SPEAKER_00 13:04

Yeah, I mean, nuclear is still a long-term bet. Um, you know, when I talk to folks in the industry, they say that, you know, if you're gonna um invest in infrastructure, uh, an LNG plant and a nuclear plant, like they they're both gonna take a long time. Whereas renewables, they will be faster. They they have many, you know, disadvantages as well. But um, we are seeing um the crisis strengthen the case for renewables in and as well as electrification more broadly, um, as a pragmatic approach to energy security. So where I would say we're seeing like an opportunistic uh look to clean energy, where it enhances their country's resilience. So we are seeing examples such as in the Philippines, they've already taken a number of measures to fast track uh renewable projects and grid projects that were much needed. Um, we've seen Vietnam accelerate and well um some of their EV incentives because it's interesting that, you know, I think 80% of Southeast Asia's oil imports were actually then designated for the road transport sector. So it's really like the auto sector, um, you know, uh long distance trucking, those types of things that are really um vulnerable in this moment. And so you're seeing um EVs become more attractive in particular.

SPEAKER_01 14:33

That's fascinating and of course makes a great deal of sense. Um, and and factors into what I wanted to ask you next. You know, let's assume for a minute, and this is a strong assumption, that the ceasefire does hold and sort of paves the way to some end to this conflict. I think you've already pointed us to a few different ways that we might think about there being lasting long-term effects on Southeast Asian countries' decision making when it comes to their energy mix, the types of projects they're expediting, the types of types of incentives they offer. Are there other medium to long-term changes that you're expecting in the energy sector in Southeast Asia that may have been ushered in by this global shock?

SPEAKER_00 15:21

Yeah, so I'm looking at long-term changes across three buckets. You know, energy strategy, like what do the memories of price volatility and access challenges, um, those are gonna remain strong. And countries are going to think about those uh and look to diversify the sources of supply. Where do they get their oil and gas imports from? Um, also diversifying what that actual energy mix is to make it more resilient, and then take steps like increase stockpiles, because that I think that's the lesson uh from here, uh, that uh, you know, 20 to 50 days of stockpiles is not enough given today's geopolitical environment. Um, another bucket I'm looking at is the political economy side. The energy crisis is putting a huge toll on fiscal, um, you know, the fiscal space for these countries. So, and many of them were already spending a lot of money on subsidies. Could this crisis um uh actually encourage any structural macroeconomic policy reforms that improves the fiscal kind of foundation in countries and um where it might have made um subsidies less appealing for governments? And then the other area I'm really looking at is what does this um what does this do to regional diplomacy? Actually, we haven't seen an integrated like ASEAN level coordination on energy security, but we are hearing calls from within the region, more from Japan and Australia, for um a collective response. Um, but we uh I think we're still in the early stages, and actually over the last couple of days, we've seen a lot of high-level visits within the region. Um, Japanese Prime Minister Takaii um going to Southeast Asia, um uh Prime Minister of Korea going to Vietnam and India, and there's um as well as Japan, Korea, and Singapore providing fuel assurances to Australia. And so we're in this interesting moment where the region is sort of showing up for each other. Then how does this then um carry through to actual multilateral conversations within ASEAN about energy security and supply chain security and what what needs to be um, you know, what new measures need to be introduced there?

SPEAKER_01 17:47

That's a really helpful lay down, Jenny. And I love the three buckets that you put your answer into. Um, you know, before kind of teasing out, as we always do, the implications for business and how businesses should be thinking about this in a slightly more granular way, I do want to come back and ask you the question of simply how likely and feasible is it for Southeast Asian countries to diversify their supply? Um, one of the things we've learned over the course of this crisis is just how staggeringly high a percentage of energy flowing through the Straits of Hormuz uh was bound for Asia. You know, as countries across Southeast Asia look to diversify, what are their other options? Um, and does this actually potentially lead at some point to opportunities for business who might be exploring alternative routes and architectures for LNG?

SPEAKER_00 18:40

Yeah, so this is something we've been looking at very carefully, you know, what short-term um supply um solutions could become longer-term supply solutions. Um analysts that I've talked to have pointed to some African markets, actually. So um countries like Mozambique, um I think Angola, um, and then also Argentina in Latin America for gas. Um and so you know, that'll be interesting to watch. Uh, the US, of course, is benefiting as well in terms of gas exports.

SPEAKER_01 19:16

So as we sort of continue to grapple uh with the reverberations of these shocks, and in particular, um, you know, noting as you have the fact that even if the ceasefire holds, we won't see uh global energy supplies return to business as usual for some time. How do you advise multinationals and regional businesses operating in Southeast Asia to stress test their exposure? And how should businesses be thinking about what more resilient energy strategies should look like over the course of the coming years? You've already sort of pointed to a few areas where governments have clearly learned. Um, but as businesses are seeking to become more resilient to the potential for future energy stocks, what should they be taking away as lessons learned from this crisis?

SPEAKER_00 20:10

Yeah, good question. I mean, we have seen, I think, that this crisis matters beyond the energy sector. So it's definitely not just energy companies that are grappling with these issues. And Southeast Asia is also really key to so many supply chains and business models that are, you know, globally integrated companies across manufacturing, data centers, logistics, food processing, consumer goods, you know, all of these things depend on having reliable power and fuel to run. Um and this current experience is highly disruptive. Uh, so I think a big takeaway that companies need to take into their planning is that they should assume disruption is possible, not just volatility. Um, you know, it's very different if it's a price versus an excess issue. Um the there are going to be some crises when you can't just pay a premium to ensure a supply of energy or power. So companies need to incorporate into their plan not just having to contend with higher prices, but also the availability constraints and rationing that they don't have control over as government dictated. They also need to be looking at this at a real country by country level. So doing more micro-level risk assessments, um, just looking at regional averages isn't going to be enough because every country's situation is so different. The level of um stockpiling, the energy mix that they're you know reliant on, the government's approach in a crisis uh is also very different by country. So um we have to really map where your operations are, what uh what is the environment there, and what what markets are those countries dependent on. And then We've also seen a real need to review contractual and reputational exposure. You've seen many companies across sectors have to declare force majeure. And many companies are who are impacting, their supply chains are impacted, are having to review, you know, what does this mean for their credibility and their reputation and the trust that they have with their customers as a supplier across every sector? So knowing, being prepared with your relationships with your customers, your supply chain, and the message that you have about kind of what how are you a trusted, credible uh partner, both to the government, because many companies are supplying needed products and services for government as well as for you know individual customers. So those are those are the main areas that we're we're looking at right now with with clients.

SPEAKER_01 23:04

Jenny, incredibly thoughtful, wise advice at a moment of pretty unprecedented global tumult, um, and particularly sound advice for business as businesses seek to tackle this increasingly uncertain world. This was a terrific conversation today, and I'm looking forward to picking it up again soon. Thanks so much for being here.

SPEAKER_00 23:24

Thanks, Mira.

SPEAKER_01 23:26

Reflecting on my incredibly helpful conversation with Jenny Shakpage, I am struck by how this conflict with Iran has revealed yet another set of shocks that demonstrate to the world where risk and vulnerabilities lie, where they might not have even been completely aware of it. I am increasingly bucketing in my head the recent energy shocks, along with shocks that have faced governments and businesses as part of the trade war or restrictions on critical mineral supplies, and thinking about this 2025-2026 period as one in which both businesses and governments learned so much more about their vulnerabilities in an increasingly uncertain and turbulent world. I think Jenny's advice for companies to map their risk and to do it on a country-by-country granular basis is incredibly sound. But I'm struck that businesses and governments alike need to be undertaking that exercise, not just with respect to the energy sector, but to all of their critical vulnerabilities throughout their supply chains that route around the world. Today's episode was produced by Refund Dewey Astono, an executive produced by Lauren Dewick with editorial input from Prashanth Jaw. It contains music by Cody Martin via Soundstripe. What comes next is a production of the Asia Group and is powered by Tag AI, Tag's geopolitical decision engine for business. We'll see you on the next episode.