Israel-Iran Tensions Disrupt Oil Flows to Asia, Raising Costs

Escalating tensions between Israel, the United States, and Iran are disrupting oil flows to several Asian countries heavily reliant on Middle Eastern crude, according to sources in the energy sector and analysts. The disruption manifests as a build-up of ships in the Gulf region, coupled with rising shipping and insurance costs. Asia, the world’s largest oil-consuming region, imports approximately 60% of its needs from Middle Eastern producers, placing it at the epicenter of the fallout from the current geopolitical situation.

Supply Chain Bottlenecks and Rising Costs

Roughly 20% of global oil production and a similar percentage of liquefied natural gas (LNG) transit through the Strait of Hormuz, making it a critical artery for global energy supplies. Reports indicate that three oil tankers have been damaged and one sailor killed in recent attacks. Around 200 ships have paused near the strait to avoid potential hazards. Insurance companies have likewise begun cancelling war risk coverage, further driving up transportation costs.

Analysts at Citi Bank note that while Iran has not formally closed the Strait of Hormuz, risk avoidance by shipping companies has effectively reduced cargo volumes, with vessels remaining outside the waterway. Global oil prices have risen by approximately 9% in response, with earlier trading seeing increases of up to 13%.

Regional Responses: Japan and India

Japan is closely monitoring the situation, with some crude oil tankers destined for the country reportedly waiting in the Gulf to avoid traversing the Strait of Hormuz, according to a senior cabinet secretary. Itochu Corporation, a Japanese trading company, has acknowledged “some impact” on its shipments of oil and petroleum products and is seeking to secure supplies from outside the Middle East. ENEOS, Japan’s largest refiner, is also assessing the potential impact on future purchases.

Indian sources report that some refiners have informed their Middle Eastern suppliers of their inability to charter ships for oil loading. The Indian Ministry of Petroleum and Natural Gas is discussing alternative options with refining companies, including the possibility of increasing imports from Russia if the crisis extends beyond 10 to 15 days. Tokyo has stated it does not currently plan to draw from its strategic reserves, which are among the largest globally.

Broader Asian Implications: China and Beyond

Any prolonged disruption in the Strait of Hormuz could significantly impact supplies to China and India, the world’s largest and third-largest oil importers, potentially forcing them to tap into stockpiles and reduce refining rates. The International Energy Agency (IEA), comprised largely of developed economies, recommends that its members maintain oil stocks equivalent to at least 90 days of net oil imports as a precautionary measure against crises.

LNG Supply at Risk

Analysts warn that disruptions to LNG exports from Qatar, Oman, and the United Arab Emirates will severely affect Asian buyers, particularly Pakistan, India, and Bangladesh. China and Japan are the largest LNG importers globally, with Japan heavily reliant on Australia for its supplies. Tokyo confirmed it holds enough stock for approximately three weeks of domestic consumption.

What’s Next: Monitoring and Contingency Planning

Energy markets remain on high alert, with concerns that continued escalation could lead to a prolonged disruption that reshapes oil and gas flow patterns towards Asia and increases global energy costs. The immediate focus is on monitoring the security situation in the Gulf and assessing the extent to which shipping companies will continue to reroute vessels to avoid the Strait of Hormuz. Further escalation could prompt more aggressive contingency planning from major Asian importers, including larger-scale drawdowns of strategic reserves and accelerated diversification of supply sources. The situation underscores the vulnerability of Asian economies to geopolitical instability in the Middle East and the importance of energy security planning.