This oil shock will hit Asia harder than the 1970s

The dizzying changes wrought by energy shocks are only ever seen in the rearview mirror.

When the 1973 and 1979 oil crises first swept the world, analysts assumed the future would be business as usual. Crude demand from Western Europe would remain broadly stable throughout the 1980s, according to a declassified 1982 analysis for the Central Intelligence Agency. The Organisation for Economic Co-operation and Development forecast in 1978 that its imports would rise to 35 million barrels by 1985.

Things didn’t turn out that way. Faced with a sevenfold increase in the cost of crude, Europe began a radical shift. A vast fleet of nuclear reactors in France, home boilers powered by North Sea gas in England, and a controversial pipeline connecting Germany to immense Siberian gas fields shredded earlier forecasts. By the mid-1980s, Europe’s gas consumption had more than doubled from its level in 1973, but oil fell 20 per cent. Crude imports slumped 30 per cent to barely more than half what the OECD had expected.

We’re seeing the first tremors of a similar earthquake now in Asia. More than 80 per cent of the oil and gas that passes through the Strait of Hormuz heads east.

Like Europe, most of the region is fundamentally short of petroleum, and getting more so with each passing year. Japan and South Korea have long been among the most import-dependent countries on the planet for their energy supplies, but the whole region is heading in the same direction.

Shortages and price rises for fossil fuels are already starting to hit consumers, in a way that will upend previous forecasts as dramatically as the 1970s oil shocks.

Vietnam became a net importer of energy over the past decade, and even petroleum-rich Malaysia is now a net fuel importer. Indonesia still subsidises fuel like the OPEC member it was for decades, but it’s been reliant on imports for more than 20 years. Domestic gas fields that sustained growth in Bangladesh, Pakistan and Thailand in previous decades are now giving out, leaving the countries at the mercy of costly, faltering LNG imports.

Shortages and price rises for fossil fuels are already starting to hit consumers, in a way that will upend previous forecasts as dramatically as the 1970s oil shocks.

In Seoul, the average price for kalguksu — a noodle soup that’s a traditional homely comfort food — crossed 10,000 won ($9.50) for the first time in March, as inflation climbed to 2.2 per cent due in part to rising energy import costs. In Japan, where food prices rose 6.8 per cent last year, ramen bowls are drifting closer to a psychologically important 1,000-yen ($8.80) threshold. Low-cost public bathhouses are facing tighter margins, squeezed between the rising cost of heating oil and government-regulated prices.

Such wealthy countries have significant tools to cushion the impact of this emergency. Energy prices in Japan actually fell 5.7 per cent in March, as subsidies and the release of 80 million barrels of oil from strategic reserves dulled the effect of the war in Iran. The number of people booking overseas vacations for the Golden Week public holiday starting this week has risen strongly. A prolonged crisis that erodes emergency government support will dim such euphoria, though. Japanese consumer confidence last month had already fallen to its lowest level since last May.

Travel across the region will be particularly badly hit. With jet fuel prices in Singapore doubling to their highest levels on record, airlines in South-East Asia have cut their May schedules by 10 per cent to 15 per cent, according to Cirium, an aviation consultancy.

Thai Airways cancelled two-thirds of its daily flights between Bangkok and Seoul. Cathay Pacific Airways is now putting a $US200 ($280) surcharge on long-distance flights, sufficient to add $US800 to the price of a return ticket between Australia and Europe.

The effect on the roads is yet more dramatic. Pakistan, the Philippines and Sri Lanka have introduced four-day weeks to reduce the amount of petrol and diesel used in commuting. Drivers of jeepney minibuses in Manila announced at least three strikes demanding cuts to fuel taxes, as rising costs threaten to wipe out their livelihoods. With some reporting an 80 per cent drop in income thanks to the rising cost of fuel, one driver interviewed by local media was reduced to sleeping on the street to save on rent.

Further down the scale, farmers in India are having to decide whether they can afford to spare money for fertiliser, as prices rise due to halted exports of urea from the Persian Gulf. The hit to living standards can be brutally direct: Pakistan is cutting grid power for more than two hours during each daily peak after flows of LNG from Qatar dried up. That translates into insufferable conditions in places like Lahore, a city of 15 million people where daytime temperatures are topping 40 degrees Celsius.

All this is driving a rush for alternatives — and the winner each time is clean energy.

In India, shortages of LPG — widely used in cooking — have sparked lengthy queues, fights at retailers, and a run on electric induction stoves that cost the same as roughly three gas bottle refills. Consumption of LPG in March fell 13 per cent compared to a year earlier.

In Australia, auction sales of used electric vehicles doubled in March. At the Bangkok International Motor Show earlier this month, Chinese EV brands accounted for about two-thirds of bookings, overwhelming Japanese automakers used to dominating the local market. Vietnamese EV-maker Vinfast Auto plans to sell about five times more cars in overseas markets this year than in 2025.

Battery-only models have already reached around 50 per cent market penetration in recent months in Singapore and Thailand, and about a third in China, Indonesia, South Korea and Vietnam. Even before the war, billions of drivers in Asia were looking for an alternative to the cost and pollution of petrol power, and in numerous markets electric models were already as cheap as conventional vehicles.

In the Philippines, imports of solar panels from China during March alone were sufficient to increase total solar capacity by half, relative to levels at the end of 2025. In Cambodia, Indonesia, Malaysia and Pakistan, trade was sufficient to boost installations by a quarter or more. One Manila-based solar installer told local news site Rappler that they were signing as much as 10 times more contracts per month than they were before the war.

Hardly anyone predicted the conflict that is catalysing this revolutionary shift. But the direction of travel has been clear for years, as the costs of clean energy have slumped below those of fossil power almost everywhere, and China’s solar, battery and electric vehicle industries have grown into world-beaters.

In betting that trade barriers, institutional roadblocks and misinformation would hold back the tide of new technology, industrial companies elsewhere made a fatal wager on fading carbon-intensive technology.

As with Europe in the 1970s, Asia is a crucial region in forecasts for fossil fuel consumption growth. In oil giant BP’s latest energy outlook, emerging Asian countries account for all the growth in LNG usage. About 70 per cent of the global increase in oil demand out to 2035 will be in South-East Asia and India, according the International Energy Agency.

The global petroleum industry is counting on robust consumption growth in Asia to justify the investments it will make over the coming years. But the crisis in the Strait of Hormuz is giving consumers and governments in the region compelling reasons to seek out alternatives.

The decision of the United Arab Emirates this week to quit OPEC is yet another reason to defect since it’s likely to erode the ability of the cartel to stabilise prices, leading to more volatility for importers.

With China’s exports of solar panels, electric vehicles and lithium-ion batteries all surging in March, a superior energy system is waiting in the wings, ready to be adopted.

Europe’s oil demand never recovered from the shocks of the 1970s. If the crisis in the Strait of Hormuz doesn’t end soon, a yet more dramatic transformation awaits in Asia.

Bloomberg

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