The US attack on Iran and the resulting closure of the Strait of Hormuz to shipping, alongside halted LNG production in Qatar, poses a severe risk of a prolonged energy supply disruption for Asia. Major economies like Japan and South Korea, with their high reliance on imported liquefied natural gas and other fossil fuels, are at greatest risk.

Asia's Heightened Exposure from Past LNG Bets

Following the 2022 global energy shock triggered by Russia's invasion of Ukraine, many Asian nations turned to imported LNG as a flexible alternative fuel to enhance energy security, supplementing or replacing domestic production and fixed pipelines. Countries, including Vietnam and the Philippines, began importing LNG for the first time and invested heavily in related infrastructure. This strategic shift has now left the region "by far the most exposed" globally to a supply crunch through the Strait of Hormuz, which in 2024 funneled 84% of oil and 83% of LNG to Asian markets. Analysts warn there are no real alternative sources to fully replace these volumes in the event of a disruption lasting more than a week, which would force Asian markets to compete for supplies amid soaring global prices.

Long-Term Risks and Policy Shortcomings

Even at this early stage, there are concerning signals that Asian and European markets could end up competing for LNG supplies, echoing the 2022 crisis. While long-term contracts offer some protection from short-term price spikes, the lesson from Ukraine is that energy price shocks ultimately become baked into long-term costs. Despite the crisis, key policies in major economies like Japan continue to favor fossil fuels. Japan's definition of energy security prioritizes diversifying fossil fuel supply over shifting toward self-sufficient domestic renewables, with institutions and policymakers still pushing to procure more LNG from the US and other markets. Policies that encourage companies to acquire equity stakes in global upstream oil and gas facilities do not incentivize a shift to renewables.

The Imperative for a Renewable Energy Shift

Analysts argue the Iran crisis should compel governments to redouble policies promoting fossil fuel-free renewable power, which offers significant cost advantages over imported LNG-fueled generation and enhances supply security. They point to Europe's post-2022 experience as a model, where an additional 50 terawatt hours of wind and solar generation reduced gas demand in the power sector by about 90 TWh, leading to gas cost savings of approximately €12 billion. While there is hope that this second major crisis in four years will spur a more concerted regional push for renewables, there remains a risk that coal generation and alternative gas supplies could also see an increase.