Asia Faces Fuel Shortages After Strait of Hormuz Oil Blockade

Asia's Energy Crisis Deepens as Strait of Hormuz Blockade Cuts Oil Supplies

A Fateful Dependence: Australia's Fuel Crisis Deepens as Iran Conflict Disrupts Global Oil Flows

Australia currently sources much of its refined oil—including gasoline, diesel, and other fuels—from various Asian nations, whose refineries in turn rely heavily on crude oil from the Gulf region. Now, as the Iran conflict rages on, China, India, Japan, South Korea, Australia, and many other countries in the region are feeling the strain. Shortages are becoming increasingly visible.

Fuel Shortages in Asia Spark Panic Buying in Australia

Hundreds of gas stations across Australia are reporting fuel shortages, with at least 600 stations nationwide running out of at least one type of fuel, Energy Minister Chris Bowen told Parliament on Tuesday. Bloomberg reports that the shortages are concentrated primarily in the two most populous states—New South Wales and Victoria—where roughly 10% of all service stations have been affected.

The near-total blockade of the Strait of Hormuz has disrupted about one-fifth of the world's oil supply, tightening fuel reserves and driving up prices. With limited domestic refining capacity, Australia imports more than two-thirds of its gasoline, diesel, and jet fuel. Its largest supplier, South Korea, has already announced plans to restrict some exports.

Panic Buying and Government Countermeasures

Demand for fuel has doubled since the outbreak of war in Iran, according to Rowan Lee, CEO of the Australasian Convenience and Petroleum Marketers Association. "The longer this goes on, the riskier it becomes," he said. "But when retailers face supply gaps, they're usually temporary, and stocks are replenished within 24 to 48 hours."

Bowen told Sky News on Wednesday that the surge in demand was driven by panic buying and anticipation of further price hikes—not an actual supply crisis. On Tuesday, the government announced it would temporarily relax diesel standards for the next six months to boost domestic supply, expanding potential imports from the U.S., Canada, and Europe. As of last week, Australia still had 38 days' worth of gasoline reserves and 30 days of diesel.

Data from the Australian Institute of Petroleum shows that both gasoline and diesel prices have risen, adding to economic pressure. The Reserve Bank of Australia raised interest rates for the second consecutive time last week in an effort to curb stubborn inflation.

Asia Braces for Worst-Case Energy Scenarios

Governments across Asia are preparing for severe and prolonged energy supply disruptions. Meanwhile, the U.S. is pushing for a plan to end the war in Iran. South Korea activated crisis mode on Wednesday, establishing an emergency economic task force to prepare for adverse scenarios, Bloomberg reported. The Philippines declared a national state of emergency, citing "an imminent threat of critically low energy supplies."

Japan is reviewing its entire oil product supply chain as the risk of shortages and broader economic fallout grows. Indian Prime Minister Narendra Modi warned that the conflict could bring "unprecedented challenges" for the country. The Middle East crisis and its shock to energy markets threaten to further stoke inflation in Australia, Chris Kent, deputy governor of the Reserve Bank, said in a speech in Sydney on Thursday.

In less than a month since the outbreak of hostilities in the Middle East, nations across Asia have shifted into emergency mode—a stark reminder of the Strait of Hormuz's critical role in global energy flows. About a quarter of the world's seaborne oil trade, along with vast quantities of other commodities, passes through the 100-mile waterway, much of it bound for Asia. Iran, positioned above the strait, has effectively blocked all but authorized vessels from transiting.

For now, the closure of the Strait of Hormuz is, in many ways, an Asian crisis. "The vulnerability has always been known, but it has never been tested to this extreme before," Singaporean Foreign Minister Vivian Balakrishnan said on Monday. "The vulnerability has always been known, but it has never been tested to this extreme before."

Shortages Hit Pakistan and Bangladesh as Asia's Energy Crisis Deepens

The scarcity is already being felt sharply across Asia. Workweeks have been shortened, streetlights turned off, and gas stations forced to close. In Pakistan, cricket fans were even urged to stay home and watch matches on television to conserve fuel. The country is also planning to introduce fuel rationing for vehicles, according to sources familiar with the matter who requested anonymity because the measures have not yet been made public.

In parts of Bangladesh, motorists are waiting in line for hours to buy gasoline, with queues stretching up to a kilometer long. Authorities have halted production at most fertilizer plants and are urgently seeking $2 billion in multilateral loans to secure enough energy to meet surging summer demand.

Asia's Patchwork of Emergency Measures

"The region is highly exposed to the fallout from ongoing conflicts and the global energy price shock," said Peter Mumford, head of Southeast Asia at the risk consultancy Eurasia Group. "Concerns are growing about second- and third-order economic effects, including flight cancellations, idle fishing vessels, and losses in tourism."

The scramble to secure oil and other critical commodities has triggered a return to protectionism. China has restricted fertilizer exports, while Indonesia announced plans to impose export taxes on coal and nickel. Vietnam is prioritizing its domestic refineries in processing its crude oil.

Such measures can backfire. A World Bank study on food shortages in the mid-2000s found that a significant portion of the global price spikes in staples like rice and wheat was driven by trade barriers erected to safeguard domestic supplies.

Turning to Once-Shunned Suppliers

Some countries are now turning to previously avoided sources. Indian refineries have purchased around 60 million barrels of Russian oil for delivery next month, Bloomberg reported on Wednesday, after drastically cutting imports earlier this year under U.S. pressure. What little oil nations can secure will likely come at a far higher cost than anticipated. New Delhi had bought Russian oil at steep discounts following the 2022 invasion of Ukraine, but recent shipments have been booked at premiums of $5 to $15 per barrel over Brent crude.

Indonesia had budgeted for a benchmark oil price of $70 per barrel this year. The government now plans up to $7 billion in savings to offset soaring fuel subsidy costs. Thailand raised its diesel price cap on Wednesday after spending $32 million daily to artificially suppress costs. The energy crisis is even reshaping geopolitical calculations: Manila is now willing to cooperate with Beijing on oil and gas exploration in a disputed area of the South China Sea.

Drawing on the COVID Playbook

Indian Prime Minister Narendra Modi said the country must prepare for the current situation much as it did during the coronavirus pandemic five years ago, suggesting that crisis could serve as a template for severe shortages. "Debt servicing was suspended, fiscal rules were relaxed, money was printed—this provides a ready-made script for such a scenario," Barclays noted in a Wednesday report.

While a severe shortage is not the base-case scenario, the bank warned that the economic impact would be "devastating" if it materialized. "Depending on the severity, governments in emerging Asia may revert to pandemic-era measures—even imposing lockdown-level restrictions on economic activity. People could be told to stay home, and entire industries might be shut down."