‘Clean energy, not LNG’ is Asia’s best hedge against energy shocks

Key takeaways

• The US-Israeli war on Iran has exposed the Asia’s reliance on imported liquefied natural gas (LNG) as a critical threat to energy security, leaving Asian economies highly vulnerable to price volatility and supply disruptions from chokepoints like the Strait of Hormuz.
• The recent oil and gas price spikes are causing a “vicious feedback loop” of steep currency devaluations and rising consumer inflation across emerging Asian markets like Thailand, South Korea, and Singapore.
• Energy analysts say that accelerating the transition to domestically generated clean energy offers the most sustainable and resilient long-term hedge against geopolitical risks and volatile fossil fuel prices, creating an urgent need for structural policy shifts.

As Asian countries reel from the oil and gas price shocks unleashed by US-Israel attacks on Iran, experts warn that “clean energy, not liquified natural gas [LNG], is key to avoiding impacts” from the unfolding crisis.

It follows the 2022 energy crisis sparked by Russia’s invasion of Ukraine, which led to many south-east Asian countries pivoting to LNG as a safeguard against future shocks.

In 2023, the Philippines and Vietnam launched their first LNG terminals. That same year, Thailand, which became the region’s first LNG importer in 2011, saw shipments of the chilled fuel grow by 40%. And across the region, there are plans to further expand total LNG import capacity by 80%.

Fuel shipments remain stuck on either side of  the Strait of Hormuz – the narrow channel between Iran and the Arabian peninsula – and the world’s largest LNG export facility in Qatar has been forced to shut down. As a result, Asian LNG prices have seen their biggest surge since 2023.

“Despite the narrative that LNG can provide energy security through diversifying supply routes beyond fixed natural gas pipelines, in reality, we’ve seen that this has not been the case with all the cards held by a few LNG suppliers,” says Amy Kong, energy transition researcher from Zero Carbon Analytics (ZCA) in a media briefing. “In essence, we’re seeing the same problems with new dealers.”

The consolidation of LNG exporters globally has left many Asian countries particularly exposed to supply shocks. Over 80% of the oil and LNG that transits through the strait is heading for Asian markets, according to the US Energy Information Administration. Four Asian economies – China, India, Japan and South Korea – account for 75% of oil and 59% of LNG flows through the chokepoint. Bangladesh, Pakistan and Taiwan are also among the top destinations for LNG shipped through the vital waterway. Within south-east Asia, Thailand and Singapore are the largest importers of LNG from the Middle East.

Many countries in Asia, including South Korea, Thailand and Taiwan, have activated emergency responses to take stock of existing reserves and assess their options for mitigating the war’s impact on energy security.

ZCA’s latest analysis finds that Japan faces the most direct disruption, due to its high share of oil and gas flows through the shipping route and its reliance on these imports for energy, followed by South Korea, India and China.

While China is the single most dependent country on crude and LNG transiting through the strait, it has built up significant reserves over the past year. It has also rapidly electrified its country and is home to the world’s largest electric vehicle fleet, enabling it to turn to its vast domestic renewables – and if need be, coal – resources.

In the short term, analysts say that the loss in Middle Eastern supply can be partially offset by new volumes from Australia, the US – which is currently the world’s largest LNG exporter – and Canada. Some countries, like India and China, have the additional option of turning to Russia for crude.

The key variable determining the ability of import-dependent countries to weather spikes in global oil and LNG prices would be the duration of the conflict, says Kong. US president Donald Trump has previously projected its assault on Iran to last “four to five weeks”.

“If the disruption lasts only a week and negotiations resume, then impacts may be constrained. However, if the conflict continues to escalate towards a regime change or broader regional war, consequences could be far more severe, as there’s no alternative supply route that can fully replace volumes passing through the Strait of Hormuz.”

Calling LNG “the fossil fuel currently most vulnerable to geopolitical disruption”, Kong says the bidding war for limited global LNG supplies in the 2022 energy crisis, where price-sensitive countries in Asia were outbidded by European counterparts, risks being played out once again.

Cash-strapped Asian economies, such as Bangladesh and Pakistan, faced power blackouts two years ago when suppliers defaulted on long-term contracts and directed LNG cargoes to more profitable markets in Europe.

Bangladesh has a 15-year LNG supply deal with QatarEnergy which kicked off in January 2026. But the state-owned energy firm has declared force majeure following Iranian strikes and halted its production.

Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, says that while Bangladesh has contracts to procure oil and LNG on the spot market from Australia, Malaysia, Saudi Arabia, Singapore and the US, “everybody is now looking at those options” too, pushing up cargo prices.

“Some of these countries are also in trouble, so they are not in a position to give us additional supply though we have a contract with them,” added Moazzem.

While Europe is relatively less exposed to disruptions in oil and gas flows in the Middle East, Sam Reynolds, research lead at the Institute for Energy Economics and Financial Analysis (IEEFA) noted that its gas prices have surpassed that of Asia’s due to historically low storage levels, which has led to panic buying in a bid to replenish reserves ahead of the next winter.

“We’re starting to see the competition re-emerge, even in the very early days of the conflict,” says Reynolds.

Asia’s central banks on edge

Emerging market currencies have seen steep devaluations against the greenback, due to higher costs of dollar-denominated energy imports and traders flocking to traditional safe-havens like the US dollar and gold.

Reynolds says that a “vicious feedback loop” could result in the structural weakening of domestic purchasing power.

“Not only do you have higher priced energy imports, you also have weaker local currencies. Which means that those imports become more expensive in local currency terms and importantly, those currency devaluations can outlast the high cost of energy imports. So we get the threat here of longer term higher priced imports in local currency terms,” he says.

In 2022, Pakistan’s modest foreign exchange reserves plummeted due to its purchase of replacement LNG at record high prices, pushing it to the brink of default and necessitating an International Monetary Fund bailout.

The fresh threat of a global energy crisis, amid Trump’s erratic tariff policies, have put Asia’s central banks on high alert.

Indonesia and India have intervened in the foreign exchange markets to cushion their currencies against the impact of higher oil prices and a stronger US dollar.

Thailand, which imports nearly 80% of its crude supply and over a quarter of its LNG, has warned of a 0.15% GDP hit as oil prices surge, estimating that a $10 per-barrel rise could push inflation up by 0.5%.

The Monetary Authority of Singapore says that it is “assessing the impact on the domestic economy and financial system”. Singapore is almost entirely dependent on imported gas, including LNG, for its energy needs and increased its dependence on Middle Eastern oil to more than 70% last year.

Meanwhile, the Bank of Korea has activated a round-the-clock Middle East crisis task force, amid the won plunging to its weakest since the global financial crisis of 2008.

BMI, a subsidiary of Fitch Solutions, expects headline consumer inflation across Asia to rise by seven to 27 basis points on the back of the conflict, with the sharpest impact felt in Thailand, South Korea and Singapore.

Divergent energy transition pathways expected

While climate and energy think tanks in Asia have long argued for a switch to renewables to hedge against volatile oil and gas prices, IEEFA’s Reynolds says the region will likely see “divergent paths” in adopting alternative clean energy sources in the short term.

“Depending on the duration of the current crisis, we are likely to see short-term fiscal measures – price caps, tax cuts, subsidies and other utility support measures – across many Asian markets to mitigate inflationary energy shocks. We are already seeing such measures in Thailand and the Philippines,” he says.

The Philippines has adopted a temporary four-day work week, while Thailand has announced that it will use its Oil Fuel Fund to cap fuel prices.

”It’s too early to speculate on long-term policy trajectories, given that the duration of the conflict is a major unknown. However, recent shocks once again undermine the case for relying on imported fossil fuels in energy sector development plans, potentially creating more opportunities for renewables to meet power demand growth.”

Contrasting the differing responses of Thailand and the Philippines after 2022, Reynolds says that while the former continued allowing new gas projects to come online despite being at overcapacity, the latter  made “a concerted push” towards renewables by introducing a centralised green energy auction programme, removing foreign ownership restrictions on clean energy investments and prioritising the addition of renewables to the grid.

As a result, solar has become the fastest-growing asset class in the Philippines, leading more expensive LNG projects to be shelved in recent years.

Gerry Arances, executive director at the Centre for Energy, Ecology, and Development, says the “silver lining” for the Philippines is that it already has policies in place to ramp up clean energy installations. “Renewable energy, particularly solar rooftop PV systems, is not [only] a strategic solution, but an immediate one, because it can be deployed within weeks.”

Areeporn Asawinpongpan, research fellow at Thailand Development Research Institute says that while short-term interventions like the Oil Fuel Fund are necessary to alleviate immediate cost of living challenges, the government must urgently implement long-term structural changes to reduce the country’s reliance on imported energy.

“This means not only expanding our Strategic Petroleum Reserve for extended crises but, most crucially, accelerating the transition toward domestically generated alternative energy, such as solar and biomass. Only by doing so can we establish true, sustainable energy security.”

Reynolds says that he expects this “divergence in strategies” to continue. “But given this is the second major crisis in just four years, I’m optimistic that we will see renewables being adopted more widely. Even Thailand’s most recent draft power development plan includes a significantly higher share of renewable energy.”

“We know that utility-scale solar projects are already one of the cheapest energy generation sources in the region when looking at the levelised cost of electricity in Asia, and they are built to last,” says ZCA’s Kong, adding that they have typical lifespans of around 25 to 30 years and incur minimal maintenance costs.

Europe, for instance, has managed to save approximately €12bn post-2022 from reducing its gas demand by about 90 terabyte hours, by adding 50 terabyte hours of wind and solar generation, she says.

This is strong evidence that Asean – where over 99% of the region’s wind and solar potential remains untapped – should be pivoting to renewables for its long-term energy security strategy, says Kong.

“The current crisis shows that Asia’s next generation of energy systems must be built to last, be flexible and prioritise security without compromising on climate goals, and clean energy can provide that.”

Update, 11/3/26: this article was amended to clarify that Singapore’s energy comes largely from natural gas including LNG, not just LNG alone.

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