Energy suppliers in countries across Asia are being forced to use more coal for power generation because the war in Iran has stifled access to oil and gas from the Middle East.
The price of crude rose by nearly 3% on Tuesday after further attacks by Iran on the United Arab Emirates. Strikes on ships that defy the blockade on tankers through the Persian Gulf and Strait of Hormuz, as well as production facilities in neighbouring countries, have caused some states, such as Qatar, to halt shipments.
Spot LNG prices in Asia have doubled to three-year highs in the second major supply shock in four years and analysts expect the conflict to significantly reduce demand for LNG imports this year, Reuters reported. Prices of oil and fertiliser have also soared.
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The overall impact has been enormous. Countries far and wide have been forced to consider a range of other options, and initial indications are that many will opt for coal-fired power, partly because it is one of the quickest, easiest and cheapest alternatives for a crisis that most hope will not be a long-term problem.
Governments in Bangladesh, the Philippines, Vietnam, Thailand, and even Japan, are now looking at coal-fired power – and a range of other measures – till the crisis ends.
For South Korea, key options are coal and nuclear power. But so far, only Pakistan and Indonesia have said they are likely to deploy greater use of solar power in the short term. Indonesia has halted gas exports and is looking to bolster use of biodiesel, but gets most of its LNG via Singapore.
India looks likely to take more crude oil from Russia, and the new Thai government has also expressed an interest in buying oil from Russia, plus other producers.
China, meanwhile, has significant reserves that could last for two to three months, but a prolonged disruption could see it use more coal power.
If the blockade in the Middle East is prolonged, many analysts expect the shift to renewables – notably solar – to intensify.
Fitch ratings agency has said that Pakistan and India are among the emerging markets most exposed to a sustained blockage in the Strait of Hormuz, which normally handles about a fifth of global oil supplies.
“For most major emerging markets, higher oil and gas prices would result in a deterioration in the terms of trade,” Fitch said. “That is most notable in Morocco, Pakistan and Thailand, where energy deficits exceed 4% of GDP.”
China asked to delay summit
US President Donald Trump said on Monday he had asked Beijing to delay his summit with his counterpart Xi Jinping because he needs to be in Washington to deal with the war.
“Because of the war, I want to be here. I have to be here. So we’ve requested that we delay it a month or so,” Trump told reporters.
“Trump is preoccupied with a war in Iran that has not been resolved as quickly as predicted, so he is keen to ensure that the military and economic fallout from that is contained within the next couple of weeks or so … which means planning a successful visit to Beijing is next to impossible,” Neil Thomas, a fellow on Chinese politics at the Asia Society, told Reuters.
“From China’s perspective, there’s been a lot of concern in Beijing about the lack of preparations from the American side for the summit, so Chinese policymakers wouldn’t mind an extra few weeks to prepare for a more substantive visit.”
Lingling Wei, the Wall Street Journal’s top China analyst, said in a mailout today that the US seemed to have realised that China’s state-led industrial drive would not be dismantled by US pressure, “so the goal has shifted from transformation to mere transactional containment.”
The Trump administration has started Section 301 probes into global manufacturing overcapacity and the failure of over a dozen nations, including China, to curb forced labour in their supply chains.
She said the primary goal now is to rebuild the tariff rates struck down recently by the US Supreme Court. The new probes would give the White House the authority to restore tariff levels to what China had “grown accustomed to” in the second half of last year.
‘Trillion-dollar trade deal?’
But she noted there has also been speculation about a huge bilateral trade deal that might impress Trump and allow China access to advanced computer chips “for a more proactive stance against Taiwanese independence.”
“If Beijing offers a trillion-dollar commitment, those skeptics worry, the US might be tempted to trade its regulatory guardrails for the optics of a historic win,” Wei wrote.
“To many in Washington and elsewhere, it is a sobering thought: the structural reforms that once defined the US-China economic war might be traded away for purchase orders and investment checks — while the geopolitical landscape shifts beneath our feet.”
The other big news on Tuesday was a claim by Israel to have killed Iran’s powerful national security chief Ali Larijani, as well as the commander of Tehran’s Basij paramilitary force. Tehran has not responded to that yet.
Meanwhile, there is concern in Australia that Trump’s decision to send aircraft carriers and other vessels normally stationed in the Indo-Pacific to the Gulf, plus 2,500 marines from Japan and missile batteries and interceptor missiles from Japan and South Korea, has weakened its power in the region and undermined its credibility and capacity to deter aggressive actions by China.
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