Asia’s Fossil Lock-In Exposed by Gulf Crisis, Renewables Key to Shielding Economies

Asia’s deep reliance on imported fossil fuels has come under renewed scrutiny as geopolitical tensions around the Strait of Hormuz threaten to disrupt critical oil and liquefied natural gas (LNG) supplies, raising concerns over energy security, inflation, and economic stability across the region.

A new analysis by Ember highlights that prolonged disruptions in Middle Eastern energy flows could significantly reshape price dynamics, intensify competition in global spot markets, and disproportionately impact Asian economies that depend heavily on imports.

Asia remains the primary destination for global fossil fuel flows, with around 84 percent of crude oil and 83 percent of LNG passing through the Strait of Hormuz in 2024 bound for the region. Major economies including China, Japan, and South Korea rely extensively on Middle Eastern supplies, while Southeast Asian nations such as Singapore and Thailand remain among the largest gas importers.

All ASEAN countries, except Brunei, are net oil importers, with Indonesia having transitioned from a net exporter to a net importer as early as 2004. In 2024, leading gas markets across ASEAN and East Asia recorded at least a 4 percent increase in imports compared to the previous year.

This structural dependence exposes power systems to cost volatility, particularly in countries where gas dominates electricity generation. In several Asian economies, gas accounts for between 34 percent and 92 percent of the power mix.

The impact of rising LNG prices is already visible. Benchmark Japan-Korea Marker (JKM) prices surged by 68 percent to around INR 2,075/MMBtu for April 2026 delivery. Ember estimates that at these levels, the cost of gas-fired electricity in Singapore could rise to approximately INR 21,646/MWh, more than double recent averages.

In extreme scenarios, with gas prices reaching INR 8,300/MMBtu, as seen during the 2022 energy crisis, generation costs could surge to nearly INR 63,910/MWh. Historically, electricity prices in Singapore spiked to almost INR 1,66,000/MWh during 2021–2022, prompting the government to introduce temporary price caps to stabilise markets.

In response to supply uncertainties, some countries are considering increased coal utilisation. However, analysts warn that this approach is both costly and environmentally unsustainable.

Coal prices have risen by about 15 percent to INR 11,122 per tonne, with the levelised cost of electricity (LCOE) estimated at around INR 6,308/MWh. While this remains lower than gas generation costs of approximately INR 8,632/MWh, it is significantly higher than renewable alternatives such as solar-plus-storage, which can deliver electricity at roughly INR 3,320/MWh.

Countries like Thailand have already moved to increase coal plant utilisation as a short-term measure. However, this could raise generation costs by an estimated INR 21,829 million (INR 2,183 crore) and increase emissions by around 3.2 million tonnes of CO₂, undermining long-term climate targets.

Rising fossil fuel prices carry broader economic consequences. As most Asian economies import energy in US dollars, price spikes tend to weaken local currencies, increase inflation, and reduce industrial output and investment.

Past crises—including the 2008 financial crisis, the 2020 pandemic, and the 2022 Russia-Ukraine conflict—demonstrate the lasting impact of energy shocks. Inflation in countries like Singapore and Thailand surged to 8.5 percent and 6.1 percent respectively in 2023, driven largely by higher energy and commodity prices.

Emerging economies are particularly vulnerable. Countries such as Indonesia and Thailand may face fiscal pressure from rising subsidy burdens, while limited policy space could restrict their ability to shield consumers from price volatility.

Oil and gas remain deeply embedded across Asia’s economic sectors, from power generation and transport to agriculture and industrial production. This makes reducing fossil fuel dependence a complex structural challenge rather than a simple energy transition.

“Asia’s industrial base is deeply dependent on fossil fuels, making this transition both essential and challenging,” said Muyi Yang, Senior energy analyst, Ember, noting that continued reliance on volatile and imported fuels poses long-term risks to economic stability.

Despite short-term pressures, analysts emphasise that accelerating renewable energy deployment offers the most effective pathway to energy security. Solar, wind, and battery storage not only provide cost advantages but also reduce exposure to global fuel price fluctuations.

Generating electricity through solar could cost nearly half as much as gas-based generation over time, even accounting for additional capacity requirements.

Governments across Asia are increasingly recognising this shift. Singapore aims to expand its solar capacity to 3 GW by 2030 while increasing clean electricity imports. Regional initiatives such as the ASEAN Power Grid are also gaining momentum to facilitate cross-border energy trade and improve system resilience.

Meanwhile, China is advancing plans to build a “new-type power system” supported by massive investments in grid infrastructure and energy storage, with spending expected to reach approximately INR 45.65 trillion between 2026 and 2030.

Experts stress that the current crisis should serve as a turning point for Asia’s energy strategy. Continued investment in LNG infrastructure risks locking countries into long-term import dependence, while delaying the transition to cleaner alternatives.

Instead, policymakers are urged to prioritise renewable deployment, electrification, grid expansion, and energy efficiency to build resilience against future shocks.

With geopolitical uncertainties persisting, Asia faces a critical choice: remain exposed to volatile fossil fuel markets or accelerate the shift toward a more secure, sustainable, and domestically driven energy system.