Chairman’s Message

<Main Points>

A global energy crisis but much more of an Asian Energy Crisis

Developing Asia hit more severely than Emerging Asia

Global sense of energy crisis weaker than the War in Ukraine

Financial support needed for Asia

Physical supply of energy essential for Asia

Energy security in Asia must be strengthened

AZEC can be a foundation for energy security enhancement in Asia

1. A global energy crisis but much more of an “Asian Energy Crisis”

The attack on Iran by the US and Israel and the responses by Iran have resulted in the largest disruption of energy flow in modern history. In particular, the de facto closure of the Strait of Hormuz disrupted 34% of the global crude oil trade flow and 20% of the global LNG trade flow. This is truly a global energy crisis.
　While the crisis is global, Asia has been hit much more severely than other parts of the world. Asia depends on the passage through the Strait of Hormuz for its energy supply much more than other regions such as Europe. Japan’s dependence on Middle East crude oil was 94% before the attack. The dependence of the Philippines, Vietnam, Thailand, and ROK was 97%, 87%, 74%, and 69%, respectively.
　To make matters worse, the reserve level of the countries in Southeast Asia has been very modest. Japan and ROK have a high level of SPR (Strategic Petroleum Reserve) managed by their governments, but many countries in Southeast Asia still lack such systems. Even if they have one, the reserve level is low. The reserve levels combining the government and the private sector reserve for Vietnam, Indonesia, Cambodia, and Laos are 65 days, 25 days, 30 days, and 40 days, respectively. Other countries in the region do not have government reserve systems yet.
　LNG has been very important for Asia as it lacks the pipeline connection that had supported Europe before Russia’s invasion of Ukraine. Furthermore, Asia is more dependent on LNG coming through the Strait. Asia’s dependence on the Strait for LNG was 27% in 2025 compared with 9% for Europe. Some countries/regions in Asia are even more dependent. The dependence on LNG coming through the Strait in 2025 for Pakistan, Bangladesh, India, Singapore, and Taiwan was 99%, 60%, 59%, 46%, and 34%, respectively. The reserve level of LNG is generally limited to a few weeks due to the difficulty caused by boil-off losses during storage, as well as the lack of underground gas storage capacity unlike in Europe, which can make the crisis of LNG supply more serious.
　Due to insufficient refining capacity, countries in Southeast and South Asia have been heavily dependent on oil products coming through the Strait. Shortage of LPG in India and shortage of gasoline and diesel fuel in the Philippines and Vietnam have quickly become serious problems, resulting in long queues at service stations.
　Vulnerabilities in the energy supply have been exposed dramatically in Asia. While the impact of the energy crisis globally is serious, the magnitude of the impacts in Asia is on a different level. This is why we may see the crisis particularly as the “Asian Energy Crisis”.

2. Developing Asia has been hit more severely than Emerging Asia

Within Asia the impact from the crisis varies. While Singapore and Taiwan are heavily dependent on Middle East LNG, they have been procuring LNG from the spot market at premium prices. The richer economies can pay their way out of the crisis.
　On the other hand, developing economies such as Pakistan and Bangladesh, heavily dependent on Middle East LNG, have difficulty in replacing the lost volumes from the LNG spot market as the price is too high for them. Pakistan introduced an additional two-week holiday for schools as well as planned power outages. Other developing economies in Asia such as Sri Lanka, Laos, and Cambodia have been facing difficulties securing gasoline and diesel fuel. Sri Lanka has turned Wednesday into a holiday. Rationing of gasoline has become part of the daily lives of people. The Asian Energy Crisis is hitting the people in Developing Asia much more than the other richer regions.

3. Global sense of crisis is weaker than the energy crisis triggered by the War in Ukraine

When I visited Europe in May 2022, the sense of crisis in Europe was very strong. People were seriously discussing the possibility of energy rationing with the prospect of cutting the supply of pipeline natural gas from Russia in response to Russia’s invasion of Ukraine. Europe was heavily dependent on Russian natural gas then.
　My visit to the UK during the week of May 18 this year made a clear contrast with my visit four years ago. People were talking about the global energy crisis and expressed concern that the closure of the Strait of Hormuz would continue, to be sure. But the concern was mainly about the price increase and not about the shortage in supply of energy. The sense of crisis was clearly weaker than four years ago. The crisis four years ago was largely a European crisis. This time it is much more of an Asian crisis. Europe is much less dependent on energy coming through the Strait. While the Iran conflict and the negotiation between the US and Iran receive heavy media attention globally, the hardship of less fortunate people in Asia has not been covered in the same manner.
　The difference in the sense of crisis influences policy responses. When the IEA discussed the release of SPR, it is understood that European members were more cautious about the release compared with the US and Japan, which were pushing for early release.

4. “Asian Energy Crisis” requires unique responses

The developing economies in Asia are hit much more seriously than other regions. They do not have the financial resources to procure expensive energy. They need financial support. This is one of the reasons PM Sanae Takaichi of Japan proposed, as part of her POWERR Asia Initiative, to provide 1.5 trillion yen, or about 10 billion US dollars, to assist Asian countries to procure energy, which has become very expensive as well as to take structural measures for resilience.
　The challenge of Asia extends beyond financing. Many of them are facing physical shortages of access to energy. When the global energy crisis is affecting every country, there are limits to how much one country can help another. But when PM Takaichi visited Vietnam on May 2, she promised to assist Vietnam with more access to crude oil. In return, Vietnam vowed to prioritize its exports of chemical products to Japan.

5. Energy security in Asia must be strengthened

Asia has learned a painful lesson from the crisis. Its energy system was too vulnerable. Asia must strengthen its energy security. It must lower its heavy dependence on Middle East energy. It must strengthen its reserve system for oil. It must develop a system to help each other in times of difficulty.
　The IEA was created in 1974 in response to the First Oil Crisis. It was formed by advanced economies mainly from Europe and North America. The core pillar was the introduction of SPR, which required its members to keep a certain level of reserve and to release the reserve in concert in a crisis. The IEA has since played an important role in enhancing energy security globally. In the current crisis, the IEA has also played a vital role in releasing SPR.
　But the current international system does not fully address the challenges unique to Asia. As most of Asian countries dependent on the Strait (except Japan and ROK) are not members of the IEA, the voice of Asia is limited in decision-making. There is no financing support to procure expensive energy. There is no support mechanism to develop high levels of reserves. There is no system to support each other with physical supplies of energy. I believe that there needs to be a mechanism to complement the existing international system to address the unique challenges of Asia.

6. AZEC can be a foundation for energy security enhancement in Asia

AZEC, Asia Zero Emission Community, was proposed by then PM Fumio Kishida of Japan in 2022. The original design was to set up a regional framework to help the energy transition in Asia to realize carbon neutrality in the future.
　With the painful lesson from the crisis, Asia must enhance its energy security. AZEC can expand its scope to incorporate energy security. In fact, the 1.5 trillion yen financing support was announced by PM Takaichi at the AZEC + Summit Meeting on April 15 this year. PM Takaichi also pledged Japan’s support for efforts by Asian economies to strengthen their reserve systems.
　AZEC currently consists of most ASEAN members, Australia, and Japan. I believe that the membership can be expanded. The AZEC + Summit Meeting on April 15 was attended by non-AZEC members including ROK, India, Bangladesh, Sri Lanka, and East Timor. In addition, PM Takaichi agreed with Korean President Lee Jae-myung, when they met on May 19, to assist other Asian countries to deal with the crisis and to enhance their energy security.
　Compared with Europe, Asia has lacked a comparable regional framework. ASEAN is a regional framework, but it is limited in its membership. The current crisis is causing so much hardship for the people in Asia. But the silver lining is that the crisis may lead to a regional framework to enhance energy security in Asia for its future.