How countries deal with energy shock from the Middle East

The conflict between the US – Israel and Iran has entered its 6th day, but there is no sign of ending. In the past few days, US and Israeli leaders have all hinted that their campaign to attack Iran could last for many weeks. The conflict even spread to many Middle Eastern countries, disrupting crude oil production and transportation in the region.

Iraq has reduced production by 1.5 million barrels of oil per day because it is running out of storage space when there are no ships to transport it. Qatar also stopped producing liquefied natural gas (LNG) because ships could not pass through the Strait of Hormuz. According to analysts, Kuwait and the UAE may be the next countries to reduce supply as storage space gradually shrinks.

These developments caused Brent crude oil to increase for 5 consecutive sessions, exceeding 85 USD per barrel. US crude oil WTI on March 5 also rose to its highest level since July 2024. Gas prices in Europe nearly doubled in just a few days. Tight supply and soaring prices force countries to find ways to ensure energy security.

Restrictions on fuel exports

March 5, Reuters Quoting close sources, Chinese officials have asked the country’s oil refineries to stop signing new fuel export contracts and at the same time seek to negotiate the cancellation of committed shipments. This does not apply to jet fuel for international flights, oil for ships in bonded warehouses, or supplies to Hong Kong and Macau.

China is the third largest supplier of oil products in Asia. However, the country’s giant oil refining industry mainly serves domestic demand. Even under normal conditions, they do not allow the free export of products such as gasoline, diesel and jet fuel. The country applies a quota system, through which the Ministry of Commerce selects a number of large refineries and trading companies to license exports.

Beijing’s move is expected to tighten supply in Asia. China is currently one of the largest fuel exporters in the region.

In Japan, sources of Bloomberg On March 5, at least one oil refinery in this country canceled shipments of gasoline, jet fuel and diesel expected to be exported in March to prioritize domestic demand. Japan imports more than 90% of its oil from the Middle East, making it especially vulnerable to the Strait of Hormuz being paralyzed.

The country’s oil refineries are also asking the government to allow access to strategic oil reserves as well as the amount of oil in storage tanks being leased to producing countries.

Thailand also announced a temporary suspension of refined fuel exports to countries except Laos and Myanmar, according to Bangkok Post. In addition, to strengthen supply security, the Ministry of Energy required oil trading companies to increase the mandatory reserve ratio from 1% to 3%, partly through export restrictions.

Further measures could include increasing the biodiesel blend ratio in diesel, from 5% to 7% or 10% if global oil prices increase sharply or there is a shortage.

If supply continues to tighten, businesses will also be allowed to import refined products such as gasoline and diesel, instead of just crude oil. In that case, the Department of Energy may temporarily relax the technical standards. The agency re-evaluates the situation after 15 days. If global energy prices become more volatile, the Petroleum Fuel Fund will be used to stabilize domestic prices.

The Thai government plans to propose a nationwide energy saving campaign at a meeting next week. Petroleum giant PTT (Thailand) on March 4 also announced to maintain retail prices of diesel and gasoline for 15 days, to help reduce the cost burden on people.

Reduce petrochemical refining capacity

Some countries choose to reduce oil refining capacity when supply is short. In India, Mangalore Refinery and Petrochemicals shut down a crude distillation facility and several secondary processing facilities.

South Korea’s Yeochun NCC petrochemical company also reduced production and announced the application of a force majeure clause in the contract, because it could not receive enough naphtha raw materials when the Strait of Hormuz was paralyzed. This method is also implemented by PCS petrochemical company (Singapore) and Chandra Asri (Indonesia).

Find alternative supplies

Indian refiners have bought about 20 million barrels of Russian crude in the past few days. The South Asian country is the top buyer of Russian oil after the conflict in Ukraine broke out. In the past few months, this country’s oil refineries have just begun to reduce purchases under pressure from Washington. However, the US Treasury Department agreed to grant a 30-day exemption, allowing New Delhi to buy Russian oil lots stuck at sea.

China is also interested in Russian oil. However, the country has not yet acted because its supply is still abundant. “Beijing bought a large amount of cheap oil before the Lunar New Year. So perhaps they are waiting until the situation of the war in Iran becomes clearer,” said a trader.

On March 4, above InterfaxRussian Deputy Prime Minister Alexander Novak announced that Moscow is ready to increase oil supply to China and India – its two top buyers currently.

Business support

Some other countries are looking for ways to increase business support solutions in the context of tight energy supply. Italian Foreign Minister Antonio Tajani said the country is ready to protect the economy and households from the impact of the crisis in the Middle East. They are finalizing measures to support export businesses as energy prices rise and shipping lanes come under pressure.

He revealed the support package will be available to all businesses affected by the crisis, as the impact could spread beyond the energy market, putting pressure on raw material prices as well as wheat and grains.

The European Union (EU) warns member countries about a sharp increase in gas prices due to conflict in the Middle East. However, after a meeting between oil and gas coordination groups, they did not realize there was a direct threat to supply and had not yet proposed an emergency response plan.

Europe currently buys most of its LNG from the US, significantly reducing the impact of supply disruptions from the Middle East. Last year, the EU imported only about 8% of LNG from Qatar.

However, governments still closely follow developments in the Middle East. In 2022, the Russia-Ukraine conflict caused the EU to fall into an energy crisis when Russia reduced gas supplies to Europe. At that time, many industries were forced to close. Governments must also intervene to protect consumers when bills rise sharply.

With Vietnamthe Ministry of Industry and Trade commented that the petroleum market is changing unpredictably. This agency said that gasoline supply was guaranteed to be sufficient in March, thanks to a combination of reserves, domestic production and imports. They build response scenarios in case of scarce supply or rapid increase in world gasoline prices.

In the immediate future, the management agency will increase inspection of the import, storage and distribution situation of key enterprises, and at the same time require units to ensure adequate supply of gasoline to the retail system. At the same time, market management forces check and handle acts of hoarding, speculation or unreasonable price increases. The Ministry of Industry and Trade also proposed that the State Bank and localities prioritize foreign currency and credit sources for petroleum businesses to serve imports in the context of strong fluctuations in the world market.