Hormuz crisis forces Asia to overhaul energy strategy amid supply chain risks

Six months into the conflict, the catastrophe that energy analysts feared in April has not arrived. Oil prices spiked to $126 a barrel—steep, but nowhere near the $150 to $200 range some had predicted. Flights still depart. Refineries still operate. The lights remain on across Asia. The reason is partly luck, partly infrastructure: emergency stockpiles released by the International Energy Agency, increased production from the U.S., Saudi Arabia, and the UAE, and China's willingness to draw down its own reserves to stabilize global markets. For now, the system held.

But the fragility of that system has become impossible to ignore. Before the war, roughly one-fifth of the world's oil trade moved through the Strait of Hormuz, the narrow waterway between Iran and Oman. More than 80 percent of that cargo was destined for Asia—China, India, Japan, and South Korea. Iran's demonstrated ability to threaten this chokepoint, and the ease with which it did so using relatively inexpensive drones against multibillion-dollar infrastructure, has rewritten the calculus of energy security. What seemed theoretically possible but practically impossible—a sustained blockade of Hormuz—has proven to be neither. "Before this crisis, many market observers would have told you it would be impossible to block or completely close the Strait of Hormuz," says Carole Nakhle, CEO of Crystol Energy. "They tried in the 1980s, but they did not succeed." This time was different.

The revelation has triggered a fundamental shift in how energy importers and exporters think about supply chains. Japan, which sourced 90 percent of its crude oil from the Middle East before the war and 11 percent of its liquefied natural gas from the region, discovered it was far more vulnerable than expected. "In Japan, if the LNG doesn't arrive, the lights go off and the country shuts down," notes Saul Kavonic, head of energy research at MST Financial. Tokyo is now investing in alternative sources: Inpex, Japan's national oil company, has formed a joint venture to expand LNG operations in Australia's Northern Territory. Similar diversification is underway across Asia. Oil exporters, meanwhile, are spending billions to build ports on the western side of Saudi Arabia and along the Gulf of Oman, effectively creating routes that bypass the strait entirely. Saudi Arabia is investing in its East-West pipeline. If these projects succeed, only 10 percent of global oil will need to transit Hormuz, down from 20 percent before the war.

Liquefied natural gas presents a more intractable problem. Unlike crude oil, which can move through pipelines to alternative ports, LNG has no workaround if Hormuz closes. There are no alternative maritime routes to Asia. Qatar, one of the world's leading LNG producers, is attempting to manage the risk through diplomacy, cultivating new customers, and seizing rare opportunities to move product through the strait when conditions permit. The company has also developed a rapid restart protocol so production can resume quickly if the waterway reopens. But the underlying vulnerability remains: gas, far more than oil, could become the critical casualty of a prolonged Hormuz closure.

What has masked these vulnerabilities so far is the sheer volume of oil in reserve. The International Energy Agency mandates that its 32 member countries maintain at least 90 days of stockpiled oil. In March, the agency coordinated the release of 400 million barrels from these emergency reserves—the largest intervention in its history. Similar stockpile mandates for natural gas were imposed after Russia's invasion of Ukraine. These reserves bought time. But time is finite. "We spent the last four months living on the oil market credit card," Kavonic says. "And if we continue at that rate, that credit card will be maxed out in a few months."

The geopolitical implications are equally stark. In August, Iran announced a new revenue-sharing agreement over the waterway, though a military spokesperson blamed the U.S. for obstructing negotiations. A U.S.-Iran deal, which might have eased tensions, now appears unlikely in the near term. Iranian control of Hormuz looks secure for years to come. This shift has already altered the balance of power in global energy markets. "OPEC has lost its primary role as global oil market manager," Kavonic observes. "It's now moved to China." China's massive stockpiles and willingness to release them have given Beijing unprecedented leverage in Pacific markets—leverage that extends beyond energy to geopolitical influence. Asian nations are now managing not only their own energy imports but also supporting Pacific Island nations dependent on diesel for basic electricity. The stakes are high: as Kavonic notes, "30 years of Pacific policy could be undermined in a few months" if energy supplies falter.

The crisis has exposed a fundamental vulnerability in the global energy system. Despite a decade of investment in renewable and alternative technologies, the world economy remains deeply dependent on oil and gas. That dependence, concentrated in a single chokepoint, has become a weapon. "Global oil and gas supply is still a major point of geopolitical leverage," Kavonic says. "Hostile actors can threaten that for their geopolitical ends." The industry is now shifting from just-in-time supply chains to just-in-case ones—building redundancy, diversifying sources, investing in alternative routes. But these changes take years to implement and billions to finance. In the meantime, the global economy is running on borrowed time and borrowed reserves, waiting to see whether the Strait of Hormuz remains open or whether the next crisis will find the world far less prepared than it was this time.