With oil, gas and fertilizer imports pressured by the war with Iran, Southeast Asian governments are ignoring pressure from the European Union and treating Russian energy as a tool of economic survival.
As Southeast Asian governments struggle to respond to the unprecedented energy crisis, the European Union is increasing pressure to stop them from buying Russian energy.
Despite years of Western sanctions, Russia continues to be one of the main energy suppliers on the global panorama. It is the second largest oil exporter in the world, behind Saudi Arabia, and the second largest gas exporter, only behind the United States.
Crucially, Russia’s geography allows it export your energy without passing through the Strait of Hormuzwhich was interrupted by the US and Israeli war against Iran.
Last week, EU diplomacy chief Kaja Kallas warned Southeast Asian countries against dependence on Russian oil. After meeting with Association of Southeast Asian Nations (ASEAN) foreign ministers in Brunei, Kallas stated that increased purchases of Russian oil would help Moscow finance its war in Ukraine.
Kallas also made a point of stating that the EU I wasn’t trying to directly punish governments or companies in Southeast Asia, but rather reduce Russian oil revenues.
However, the warning comes at a time when several Southeast Asian capitals are facing threats to energy security and food production, overshadowing the diplomatic consequences of the war in Ukraine.
“Faced with a serious energy crisis that could destabilize their economies and trigger street protests, some Southeast Asian governments will prioritize oil supplies over what they consider to be a distant conflict in which do not have any direct participation“, Ian Storey, senior researcher at the ISEAS-Yusof Ishak Institute in Singapore, told DW.
Indonesia and Philippines already buy Russian oil
The region consumes around 5 million barrels of oil per daybut it only produces about 2 million, which forces it to buy the rest on the global energy market. Most of its oil imports come from the Middle East.
Indonesia announced last week that it will import around 150 million barrels of Russian crude this year, following President Prabowo Subianto’s visit to Moscow. The Philippines, considered a US ally in the region, received a shipment of Russian crude in March, the first such delivery in five years. Manila also asked Washington to extend a sanctions exemption that would allow new purchases.
Thailand has been exploring ways to secure fertilizers and other agricultural inputs from Russia, while Vietnam is looking for alternative fuel sources after China and Thailand restricted exports of refined fuels. Vietnam depends on China and Thailand for more than 60% of its jet fuel needs.
Oil imports fall to 2015 levels
The war in the Middle East has created the biggest supply disruption in the history of the global oil market, with the flow of crude oil and oil products through the Strait of Hormuz to fall to the bottom from about 20 million barrels per day before the war to a very low level, according to the International Energy Agency.
The first month after the Russian invasion in February 2022 saw Brent crude prices rise from 95 dollars to 115 dollars (from 80.7 to 97.7 euros) per barrel, an increase of 21%.
In contrast, the ongoing crisis in the Middle East has caused the price of Brent rose from 71 dollars to 103 dollars in March, representing an increase of almost 27%, followed by another jump in April, raising the reference price to around 120 dollars per barrel before falling amid hopes of a deal to end the conflict.
Southeast Asia crude oil imports fell 30% in April compared to the previous year, reaching the lowest level since 2015, according to data compiled by Kpler, a Belgium-based analytics company.
ASEAN nations warn that the cost of living is already rising across the region, with low-income families and small businesses being most affected.
How are ASEAN nations dealing with the oil crisis?
Southeast Asian governments acted quickly following the US and Israeli attacks on Iran in late February.
As Filipinas declared a state of national energy emergency for one year and created a contingency committee for fuel and essential goods. Despite these measures, inflation soared to 7.2% last month, compared to 2.4% in March, according to government data.
Indonesia resorted to administered prices and subsidies, allocating $22.4 billion for subsidies and compensation in the energy sector, while Thailand froze cooking fuel prices until May and used its oil fund to contain fuel costs.
Malaysia has also absorbed much of the impact through subsidies, with its monthly fuel subsidy bill rising from around US$179 million in January to as much as 1.5 billion dollars.
Weeks after the start of the war with Iran, Philippine authorities stated that the country had enough fuel for about 45 days. On March 25, President Ferdinand Marcos Jr. said he was “quite confident” that the country had secured additional shipments to keep its stocks topped up.
With the original deadline about to expire, the crisis is already affecting daily life. Nationwide transportation groups and consumer organizations threatened to strike due to fuel costs, increasing the risk of disruption in cities where passengers rely heavily on buses, minibuses and motorcycle taxis.
In Vietnam, aviation authorities have warned airlines to prepare for reductions in domestic flights from April, following the suspension of aviation kerosene exports from China and Thailand.
Across the region, farmers are being squeezed by rising diesel and fertilizer costs, with rice producers in Thailand, Vietnam, the Philippines and Indonesia already reconsidering their planting plans.
Could the fuel just run out?
Indra Overland, head of the Center for Energy Research at the Norwegian Institute of International Affairs, told DW that the current crisis is greater than the oil shocks of 1973 and 1979as well as other previous oil shocks. This is because the oil, LNG and fertilizer markets are tightening simultaneously.
Unlike previous price spikes, this crisis is unfolding in parallel with the increasingly effective attacks from Ukraine to Russian oil and gas infrastructure, which further reduces the space for alternative supply, she said.
The fundamental difference between this crisis and previous energy shocks is that it is not just about higher prices, but also of scarcityRogelio Alicor Panao, professor of Political Science at the University of the Philippines Diliman, told DW.
“This means that countries cannot simply pay more to get what they need. Instead, may run out of fuel or power“, added Panao.
Fertilizer shortage affects food production
The fertilizer crisis is especially dangerous for Southeast Asia, where food prices are politically sensitive and many governments still remember the social unrest caused by previous inflationary spikes.
Russia represents about a quarter of regional fertilizer importswhile China, previously the largest single exporter of fertilizers to Southeast Asia, has also cut exports, “so Southeast Asian countries are feeling the pinch,” Hunter Marston, Southeast Asia director at the Lowy Institute, told DW.
Countries that heavily subsidize energy and electricity and are less dependent on imports, such as Indonesia, Thailand and Malaysia, have so far managed better contain inflation and rising raw material prices since the crisis began in late February, Alloysius Joko Purwanto, senior energy economist at the Economic Research Institute for ASEAN and East Asia, told DW.
But countries with more market-based pricing, like the Philippines, or a greater reliance on imports, like Laos and Cambodia, have seen sharper increases in inflation or consumer prices, he added.
At best, there will be months of discomfort.
The IMF has called on Asian governments to maintain targeted support, warning that extended price caps and subsidies could burden public financeseven if they alleviate the immediate impact on families.
Even if the conflict ends tomorrow, the return of oil and gas production to “normal” levels it will take six months or moreSam Reynolds, head of research at the Institute for Energy Economics and Financial Analysis, told DW.
A likely event will be increased competition between European and Asian buyers of LNG and oil, especially as gas storage in Europe is currently at only 30% of its capacity occupiedbut needs to reach 90% by October, Reynolds said.
But this energy crisis is unprecedented, “and I’m not sure anyone can say for sure how serious the situation will become,” he added.
