Fuel shock in the fast lane: how Asia’s drivers are paying the price of war

The war involving the United States, Israel and Iran has sent a delayed shockwave through global energy markets and nowhere is the impact more acute than at petrol pumps across Asia.

As oil prices surge on fears of on-again, off-again supply through the Strait of Hormuz, governments from Bangkok to New Delhi to Tokyo have been scrambling to shield consumers from the fallout while grappling with the limits of domestic budget limits and local subsidy laws.

At the heart of the crisis is the fact that Asia is structurally exposed. Many of the continent’s largest economies rely heavily on imported oil from the Middle East. This in turn leaves billions vulnerable to geopolitical shocks as is seen in the widespread worry over rising fuel and power bills in India. Japan, Taiwan and Thailand to name but a few of the worst affected countries.

As the war has already pushed crude prices sharply higher, with Brent now still well over $100 per barrel - $107 at time of writing – and looking like it could move up towards $120 in the coming days, markets are pricing in worst-case supply disruptions. These increases have now filtered down to petrol pump prices, triggering a wave of policy responses across the region.

In Southeast Asia, governments have moved quickly to blunt the immediate political and economic fallout. Thailand’s oil fund is reported to be spending millions of dollars - daily - to subsidise fuel and prevent sharp retail price rises. Whilst seen as a move to appease a highly politicised population by effectively absorbing global market volatility on behalf of consumers, such interventions, politically expedient in the short-term, come at considerable long-term fiscal cost. As of Monday, March 23, a litre of RON 95 Premium comes in at around $1.27 in the kingdom.

Neighbouring Malaysia – energy rich in terms of LNG deposits – is currently pumping the same fuel for as little as $0.83 according to some reports, others claiming it can be bought for just $0.5.

Further south, global bunkering hub Singapore meanwhile is pumping 95 for $2.70 per litre – the highest price recorded across Asia. Offshore, the Philippines at $0.96 and Indonesia at $0.72 are still at manageable levels even if domestic budgets are feeling the pinch.

In Vietnam, petrol prices have reportedly surged, fallen again and once again shot up by around 30% net in recent days, and now stand at $1.17 per litre of 95.

Such volatility risks exacerbating inequality, particularly in economies where fuel costs form a large share of household expenditure as it does in Southeast Asia.

Elsewhere, governments have opted for more visible rationing measures. Bangladesh - $0.97 per litre as of March 23 - has introduced fuel restrictions and even deployed security forces around oil depots to prevent panic buying.

Across the border in Myanmar (around $0.95 per litre) strict controls on vehicle use are in place to conserve supplies. In Pakistan meanwhile, authorities have resorted to broader austerity measures, including school closures and reduced working weeks, to ease pressure on fuel demand. Petrol is currently being sold in Islamabad for around $1.14 per litre.

The policy responses highlight a familiar Asian dilemma: the tension between maintaining social stability and cohesion, and managing macroeconomic fundamentals.

Fuel subsidies are a tool widely used across the region and are now acting as a buffer of sorts against inflation, even if they do distort real-time price signals and dent public finances.

In India, one of Asia’s largest oil importers, and the world’s most populous nation, the effects are already being felt through the wider economy while petrol is being pumped as of March 23 for $1.10 per litre. Elevated crude prices are now contributing to inflationary pressure on New Delhi with the rupee under significant strain as worries over capital outflows persist.

The knock-on effects for such a major economy are significant and point to higher transport costs and increased input prices for industry. In time this will lead to unwanted pressure on household budgets.

In the more economically developed Northeast of Asia, Japanese drivers are paying $1.19 of late, as the ruling Liberal Democratic Party in Tokyo makes promises to reduce prices by JPY20 ($0.12) in the coming weeks. Across the Sea of Japan in South Korea prices are even higher - hovering around the $1.25 mark having hit a peak earlier in the month. The government in Seoul has spoken of a price cap.

Taiwanese buyers though – where petrol prices are heavily controlled by the government – are forking out just $1.00.

Across the continent, with the conflict in Iran approaching the one month point, governments are responding not only with subsidies, however, but also with emergency conservation measures. Work-from-home policies, shortened working weeks and school attendance being cut to reduce fuel consumption and ease pressure on transport networks are working – for now. Yet these measures, while temporary, reflect the severity of the supply shock and the lengths to which Asian policymakers are willing to go to preserve domestic stability across the continent.

For some, the war has defined the geopolitical risks embedded in global energy markets while for others, it has reinforced the economic case for accelerating the transition to cleaner energy sources – a shift already well underway in many Asian nations.

For now though, the immediate concern is the price of fuel. The effectiveness of subsidies and price controls is offering short-term political relief, but the underlying pressures such as global supply constraints, and dependence on imported energy are unlikely to dissipate any time soon.