When the US-Iran war erupted on February 28 this year, crude oil prices spiked more than 70% in the first seven weeks. Asian countries have been hit the hardest because the region accounts for about 85% of crude shipments leaving the Gulf via the Strait of Hormuz.
The war has not only impacted oil prices but also caused a shortage of fertilisers and strained national exchequers.
Let us see how countries have responded to different challenges.
Citizen Participation & Fuel Conservation
Almost every country appealed to its citizens to conserve fuel usage.
The Philippines declared a national emergency that included a four-day public-sector workweek and reduced domestic flights. South Korea's public sector vehicles will run only on five days a week based on their license plate numbers, much like an old odd-even rule in Delhi. At the same time, the top oil-consuming companies in Korea will get priority in government-backed loans if they reduce energy consumption.
Vietnam, Indonesia, Thailand and even India promoted WFH, carpooling and usage of public transport. Indonesia imposed fuel-purchase limits, while Thailand froze public transport fares. India largely relied on appeals for conservation rather than coercive measures.
In contrast, Singapore and Japan relied less on rationing or public restrictions because of stronger financial buffers and supply systems.
Fuel Price Management
Within 24 hours of the war breaking out, Vietnam activated the Fuel Price Stabilisation Fund, built during the low-price years, to soften retail fuel prices. It also cut fuel-related tariffs and taxes. South Korea expanded fuel tax cuts and capped wholesale prices. Japan subsidised refiners directly, and Thailand made biofuel blends cheaper to increase the demand.
Indonesia and Malaysia followed a different model. Both run dual pricing systems, one type of fuel is subsidised while the other moves with global crude prices. So during the crisis, subsidised fuel prices barely moved, but market-linked fuels reacted sharply to the oil shock.
Singapore is an outlier in terms of policy framework. It does not provide fuel subsidies and, therefore, saw one of the sharpest price rises in the region.
India, by contrast, was the last major economy in Asia to react. Fuel prices remained frozen for nearly 12 weeks while the refiners absorbed the losses. Only on May 15, once under-recoveries became too large to sustain and state assembly elections ended, did the first price hike arrive.
Countries that let prices move saw a sharp price rise in March, but also a fall once crude prices cooled off in April and May. India skipped the cycle and is now raising prices when some countries are seeing prices ease. Yet India has the lowest price hike in the region.
Supply Security and Strategic Reserves
One of the most important aspects for all Asian countries is securing critical supplies. The go-to action was approaching non-Gulf countries for oil and energy needs.
Japan and South Korea have the largest crude oil reserves among Asian countries. They tapped those and even participated in coordinated IEA releases. On the other extreme, we have the Philippines, which has the thinnest reserves in the region, and was forced into emergency procurement and diplomatic negotiations much earlier than others.
India and China focused on diversifying suppliers, with Russia being the common one. China also focused on maximising refinery throughput while India imposed taxes to keep more refined fuel within domestic markets.
Energy Substitution: Coal, Biofuels and Nuclear
The war also accelerated longer-term substitution strategies, which differed across the countries.
China and India leaned on coal. China intensified coal-to-chemicals production and coal-based fertiliser manufacturing, while India accelerated its Rs. 37,500 crore coal-gasification programme while continuing its ethanol blending and EV push.
Indonesia and Malaysia pushed biofuel expansion with palm oil feedstock. From July 1, Indonesia will simultaneously implement B50 biodiesel nationwide and E5 gasoline in selected regions of Java. It has also tightened palm oil exports to secure domestic feedstock. Malaysia is rolling out B12, an upgrade from its existing B10 blending. Thailand, as mentioned before, has made biofuel cheaper so that consumers switch voluntarily.
Vietnam expedited E10 rollout and promoted EVs and hybrids as part of its response. South Korea, on the other hand, accelerated nuclear reactor restarts, eased coal restrictions and continued investments in hydrogen vehicles and infrastructure.
Food, Fertilisers & Farmers
The crisis will cause fertiliser shortages, hurt farmers and threaten food security.
China has tightened fertiliser exports and scaled up coal-based fertiliser production. India has increased fertiliser subsidies, prioritised gas allocation for fertiliser plants and enforced anti-hoarding measures.
Indonesia used its strategic fertiliser reserves while its biodiesel push tightened global vegetable-oil markets. Indonesia has been exporting fertilisers to many countries in the past couple of months.
Malaysia has redirected gas to fertiliser production and explored biomass alternatives. Japan prioritised fuel for agriculture and critical infrastructure, while South Korea used urea reserves and provided relief to farmers.
Being a producer and one of the largest rice exporters, the Philippines set a 30-day rice price cap to prevent cascading food inflation.
Final Take
The delayed and relatively small price hike hints at more increases may still be ahead. Two lessons India can learn from Vietnam are the importance of a rules-based fuel pricing system and a dedicated fuel stabilisation fund. A formula-linked pricing mechanism reduces political interference and allows fuel prices to move more gradually with global crude prices, while a stabilisation fund can cushion sudden shocks without forcing PSU oil companies to absorb large hidden losses.
On a broader level, oil reserves, supply diversification, fuel pricing systems and fiscal strength have shaped the policies of Asian countries.
If the war drags on, Asia will suffer most as fuel and fertiliser costs could not only push the food prices up but also strain and starve billions of livelihoods. Asia, therefore, has a strong interest in pushing for a ceasefire and lasting peace.
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