Asian governments are scrambling to avoid a second major energy crisis in six months after Yemen's Houthis launched a blockade of Saudi Arabian shipping through the Bab al-Mandab strait, the southern entrance to the Red Sea. Countries such as Japan, the Philippines, Thailand and South Korea, which rely on Middle East oil for up to 90% of their imports, are now working to secure supplies amid the disruption.
‘Scraping the bottom of the barrel’
Many Asian nations are still reeling from Iran's effective closure of the Strait of Hormuz in March, which forced them to compete for dwindling Middle Eastern crude. “They’re scraping at the bottom of the barrel in terms of global reserve capacity … there’s very little inventory now,” said Ahmed Helal from the Asia Group thinktank.
Japan and its neighbours are already spending billions on fuel subsidies to keep petroleum costs down, straining government budgets. After the Houthi announcement, South Korea moved quickly to extend fuel tax cuts. Meanwhile, the spike in import costs has driven up inflation, piling pressure on regional giants such as Japan and Indonesia.
Rerouting comes at a cost
The threat to Red Sea shipping adds to the pressure. In March, Saudi Arabia responded to the Hormuz closure by rerouting oil exports to the west coast port of Yanbu, which now handles over 70% of Riyadh's crude exports. That proved a lifeline for China—the largest buyer of Saudi oil—along with India, Japan and South Korea.
Some Japanese and South Korean refiners are reportedly seeking to avoid the Houthi threat by rerouting cargoes north through the Suez Canal, to the Mediterranean and around Africa. But this lengthy detour carries huge costs. A very large crude carrier (VLCC) is too big to pass through the Suez Canal fully loaded, meaning it would need to unload up to half its oil in the Red Sea, transport it via Egypt's Sumed pipeline to the Mediterranean, and then reload after transiting the canal—adding costs and logistical complications.
Rerouting via the Mediterranean and around the Cape of Good Hope would more than double voyage times for most Asian importers, further increasing freight and fuel costs.
Insurance premiums double
“Changing behaviour by tankers tells us that they are taking the threats seriously,” said Matt Smith, a commodity research director at Kpler. War risk premiums paid by tankers have reportedly doubled in the last week, potentially adding hundreds of thousands of dollars to a voyage. Those costs will be passed on to consumers in Asia, already reeling from the US-Iran war energy shock. “Businesses are going to have to close. You might have attempts to reduce consumption at peak hours. And you might have, in some extreme cases, higher risk of default,” Helal said.
A vulnerability exposed
After Hormuz transits slowed to a halt in March, many Asian countries rushed to mitigate disruption: coal-fired power plants were revived, Sri Lanka imposed a four-day working week, and Vietnam urged staff to work from home. Now resources and patience are running low. The Houthi threat has prompted the Philippines, India and South Korea to bolster strategic oil and gas reserves, while the crisis has added urgency to the renewables transition. But with no short-term solutions, Asian importers are looking farther afield. Russia is once again likely to benefit: Japan and South Korea bought Russian oil earlier this year for the first time since Moscow's 2022 invasion of Ukraine, and Reuters reported that Chinese refiners have ramped up purchases of sanctioned Russian crude to counter the disruptions.
The chaos points to a truth experts say governments have ignored for too long: their energy systems remain far too vulnerable. Helal predicts the crisis will force many to reckon with supply chains and strategic reserve capacity. “But for now, they simply have to secure supplies,” he said, “because there’s very little in the tank for them to draw on.”
