EXECUTIVE BRIEF: Iran War Is Forcing Asia Into a Crisis-Driven Energy Reset Risk
The effective closure of the Strait of Hormuz—which carries ~20% of global oil and LNG—has triggered a full-scale energy crisis across Asia. With over 80% of these flows destined for Asian markets, the disruption is not just a supply shock, but a system-wide stress test, resulting in fuel shortages, export restrictions, and mounting fiscal pressure. The key risk is a disorderly transition, where short-term energy security measures directly conflict with long-term decarbonisation pathways.
System Impact: Why Oil Disruption Becomes Economy-Wide
The current disruption is not limited to energy supply—it cascades across the entire economy due to how crude oil is used, as it underpins not only power generation but also transport, logistics, manufacturing, and everyday consumption.
Crude is refined into multiple essential fuels that support different sectors:
- Gasoline (transport): Primary fuel for passenger vehicles and motorcycles.
- Diesel (logistics and industry): Powers trucks, heavy transport, and industrial machinery.
- Jet fuel (aviation): Essential fuel for commercial and cargo aircraft operations.
- LPG (households): Widely used for cooking and small-scale household energy needs.
- Fuel oil (power and shipping): Used in power plantsandasbunkerfuelfor
- Naphtha (petrochemicals and manufacturing): Key feedstock for producing plastics, chemicals, and synthetic materials.
- Kerosene (heating and lighting): Used for heating, lighting, and in some regions as a household fuel.
Because these fuels are produced from the same refining stream, a disruption in crude supply quickly translates into broad-based constraints across multiple economic activities.
This is already visible across Asia:
- Aviation is being scaled back due to jet fuel shortages
- Logistics networks are tightening under diesel constraints
- Energy-intensive industries are facing rising input costs
Crisis Phase: Immediate Breakdown in Energy Systems
The impact across Asia has been both rapid and severe, shifting governments from price management to active demand control.
- South Korea has imposed consumption restrictions, from limiting household energy use to regulating private vehicle usage.
- Thailand has reduced working days and increased temperature thresholds in public buildings to curb demand.
- Vietnam is suspending selected domestic flights due to jet fuel shortages.
- Philippines has declared a national energy emergency amid rising supply At the same time, fiscalstrain is intensifying. For instance, Malaysia has seen fuel subsidy costs surge multiple-fold, forcing reductions in subsidised fuel quotas.
Backward Step: Coal as the Only Immediate Buffer
In response, Asian economies are reverting to coal as the only immediately scalable and dispatchable energysource. This shift is already visible through concrete policy actions:
- Japan has lifted caps on coal-fired generation, allowing older and less efficient plants to operate at fullcapacity for up to a year.
- South Korea has removed its 80% utilisation cap on coal plants, enabling higher output from existing assets.
- Thailand is restarting recently decommissioned coal plants, reversing prior transition progress.
- Indonesia is prioritising domestic coal allocation over exports, reinforcing coal’s role as a national energy buffer.
This reflects a structural constraint: coal is already built, fuel supply is more controllable than LNG, and ramp-upcan be executed immediately. However, the risk extends beyond temporary usage: Once coal capacity is reactivated, sunk costs and political economy dynamics make it significantly harder to retire.
Implication: The region faces a growing carbon lock-in risk, where crisis-driven decisions extend coal dependency beyond intended timelines.
Forward Shift: Nuclear Returns to the Policy Core
While the short-term response is backward-looking, the long-term response is accelerating nuclear adoption across Asia as governments seek more secure and self-reliant base load power.
- Vietnam has finalised its first nuclear project with Russian support, marking a concrete step from planning to execution.
- Taiwan is reversing its nuclear phase-out stance, signalling a major policy shift after years of anti-nuclear positioning.
- Philippines is targeting nuclear deployment by 2032 and actively seeking foreign expertise.
- South Korea is increasing utilisation rates of existing reactors, reinforcing nuclear’s role in its energy mix.
- Indonesia is re-entering nuclear discussions, with growing policy and investor interest in developing nuclear—particularly small modular reactors (SMRs)—as part of its long-term energy diversification strategy.
- Malaysia is actively exploring nuclear energy to support rising electricity demand—particularly from data centers—while maintaining its net-zero commitments.
Across the region, nuclear is being reframed from a politically sensitive option into a strategic energy security asset—capable of delivering stable baseload power while reducing exposure to volatile and geopolitically constrained fuel imports.
Regional Fragmentation: Uneven Impact Across Asia
The shock is not uniform across the region.
- China is relatively insulated due to a diversified energy mix (coal, nuclear, renewables) and largestrategic reserves (~120 days)
- However, China’s decision to restrict fuel exports is tightening regional supply further, creating second-order impacts across Asia
In contrast, import-dependent economies face acute shortages, higher prices, and limited fiscal capacity to absorb the shock.
What This Means: Early Signals of Structural Demand Shifts
Beyond immediate supply responses, the crisis is beginning to reshape consumption patterns and investment direction across Asia.
There are early signs of structural demand shifts:
- Rising interest in electric vehicles as consumers react to fuel price volatility
- Increased policy momentum toward electrification in transport and industry
- Greater focus on securing alternative energy sources for critical sectors
These shifts are not yet system-wide, but they indicate how prolonged volatility can accelerate behaviouraland investment changes that would otherwise take years to materialise. More fundamentally, this reflects a shift inhow energy is valued—not just as a cost input, but as a strategic risk factor. Electrification and alternative energy are increasingly seen as tools to reduce exposure to external shocks, while governments and industries begin prioritising supply certainty and system control alongside cost efficiency.
If sustained, this dynamic could gradually reshape how economies structure their energy systems, with greater emphasis on domestically anchored, electrified, and more controllable energy pathways.
Skylight’s Opinion
The current crisis highlights a fundamental shift where energy security is no longer a policy consideration—it is a real and immediate risk. With high uncertainty in global supply chains, countries that will remain resilient are those that can secure and supply their own energy domestically, reducing exposure to external shocks. This reframes the role of energy policy—from optimisation to risk management and system resilience.
Latest Update
- Indonesia Signs Agreement With Japan for Nuclear Power Development
- Indonesia and Japan have signed a five-year agreement on nuclear power development, marking a strategic step for coal-reliant Jakarta toward diversifying its energy mix.
- The agreement facilitates the participation of Japanese firms in Indonesia’s nuclear program. It also broadens potential deployment beyond West Kalimantan and outlines financing mechanisms through export credit agencies, including Japan Bank for International Cooperation and NipponExport and Investment Insurance (NEXI).
- Japan’s current involvement centers on a project in West Kalimantan, where JGC Corporation is collaborating with NuScale Power to develop a small modular reactor (SMR). Indonesia is targeting its first 500 MW of nuclear capacity by 2033, with SMRs typically generating roughly one-third the output of conventional nuclear plants.
- Nuclear energy accounts for approximately 40% of Japan’s domestic power generation as of 2024, representing the largest share in its energy mix, according to the International Energy Agency.
- Despite growing foreign interest, key decisions on Indonesia’s nuclear rollout remain contingent on the establishment of the Nuclear Energy Program Implementation Organization (NEPIO), to be led byPrabowo The body will oversee reactor planning and development but is pending formalization through a presidential regulation.
- Indonesia Plans to Build Oil Storage to Increase Storage Capacity
- Indonesia plans to develop a crude oil storage facility to strengthen national energy security, targeting reserve capacity of up to 90 days in line with international benchmarks.
- Current storage capacity covers only ~23 days of The government has attracted interest from multiple foreign investors, although none from United States to date.
- Industry practitioners indicate that initial development should be built in high-demand regions such as Java to maximize impact.
- Expanding reserves from ~20 to 90 days would require approximately 56 additional storage tanks, at an estimated cost of 65 trillion. (US$25 billion) As a phased approach, the practitioners suggest that the government should consider an initial increase to 30 days to manage fiscal exposure.
- Provinces with the largest existing fuel storage capacity include:
- East Java: 15 million kilolitres
- West Java: 950,000 kilolitres
- Jakarta: 910,000 kilolitres
- Riau Islands: 890,000 kilolitres
- Banten: 770,000 kilolitres
- PT Timah and Perminas Preparing Groundbreaking of Rare Earth Metals Plant
- PT Timah, state-owned tin producer, is scheduled to break ground on a rare earth element processing plant on 20 The plant is expected to begin generating state revenue within two years of construction.
- PT Timah will partner with Perminas, a new entity under sovereign wealth management of Danantara, to develop the rare earth value chain, focusing on processing tin by-products—particularly monazite—as the primary feedstock.
- Under the partnership, PT Timah will supply raw materials and infrastructure, leveraging its MiningBusiness Licenses (IUP) to ensure consistent volume and delivery. Perminas will act as the off-taker and lead downstream processing into value-added rare earth products.
- Based on joint research with Bandung Institute of Technology, PT Timah estimates monazite resources at ~1.2 million tonnes within its IUP area, subject to further validation through exploration and drilling.
- Taiheiyo Cement Partnered with Semen Indonesia in The Ground Improvement Business.
- Taiheiyo Cement and its subsidiary PT Taiheiyo International Indonesia (TII) signed an MoU with Semen Indonesia Group (SIG), including its subsidiaries Solusi Bangun Indonesia (SBI) and Multi Karya Infrastruktur (MKI), to collaborate on ground improvement in Indonesia.
- The partnership builds on a 2020 business alliance covering cement, resources, environmental materials, R&D, and trading of cement and clinker, addressing Indonesia’s geological challenges, including earthquake-prone regions and soft ground (10% of land), to enhance infrastructure stability.
- Collaboration Goals:
- Leverage Taiheiyo Cement’s advanced ground improvement technologies.
- Utilize SIG’s manufacturing and sales capabilities.
- Ensure a stable supply of ground improvement materials.
- JICA’s Geothermal Project Financing and Investment Climate Reform in Indonesia
- JICA signed a JPY 156 billion ODA loan agreement with Indonesia for the Hululais geothermal power project in Bengkulu, Sumatra. The project includes two power plants, transmission, and substation facilities, aiming to stabilize electricity supply and support climate initiatives like AZEC and JETP. Operations are targeted for 2030, with a 30-year repayment period and low interest rates(0.3% for the main loan).
- JICA also signed a JPY 50 billion loan agreement for the “Program for Competitiveness, Industrial Modernization, and Trade Facilitation (Subprogram 3).” This initiative supports policy reforms to improve Indonesia’s business environment, benefiting over 1,600 Japanese companies operatingin the The loan is co-financed with ADB and KfW, totaling approximately JPY 153.2 billion.
- Plastic Sector in Indonesia Faces Shortages as Supply Tightens in the Middle East
- Indonesia’s plastic industry is facing mounting pressure as the Iran–Israel conflict disrupts global supply chains, constraining access to petrochemicals and driving up prices, linked to restricted traffic in the Strait of Hormuz, a critical artery for global petrochemical. The bottleneck has limited the flow of raw materials from the Middle East, a region that supplies 70% of the country’s petrochemical raw materials.
- Plastic production relies heavily on naphtha, a refined oil product that is processed into monomers and eventually turned into plastic. However, naphtha supplies have tightened significantly amid the ongoing disruptions.
- The uncertainty has forced manufacturers to scale back operations, with many reluctant to accept new orders due to concerns over raw material availability. Industry players are seeking alternative supplies from Asia and Southeast Asia, but those efforts have also hit obstacles.
- Facing supply constraints, companies are increasingly turning to innovation to sustain Measures include using recycled materials, exploring substitutes for plastic, and redesigning products to reduce raw material usage.
- The government should accelerate the development of alternative feedstock industries, including the coal downstream industry and the use of crude palm oil (CPO), to reduce reliance on oil-based inputs.
- Comparing with China, it has built greater resilience by diversifying its raw material sources across coal, natural gas, biomass, and oil. This allows its industry to better withstand global shocks.
End of Document
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