Release oil reserves, cancel fuel tariffs, set oil price ceilings... Asia's energy defense war escalates!

# Xu Chao

Source: Wallstreetcn

The conflict in the Middle East has driven oil prices sharply higher, and multiple economies in Asia are rapidly rolling out a series of emergency energy measures. Vietnam is cutting taxes and deregulating to secure supplies via market mechanisms; South Korea is reinstating oil price caps for the first time in 30 years; Japan is preparing to release strategic reserves; and Bangladesh is curbing demand by closing universities and restricting fuel sales. If high oil prices persist, whether government subsidy gaps can be sustained will become the most critical risk variable in this crisis.

Since early March, the conflict in the Middle East has continued to escalate, disrupting the global energy supply chain. The Strait of Hormuz, a critical global energy transport artery, has been nearly paralyzed, blocking large volumes of crude oil and natural gas shipments.

Brent crude prices have broken above $100 per barrel. As the world’s largest crude importing region, Asia has borne the brunt. Governments across the region have begun intensively rolling out emergency policies—from releasing strategic reserves to capping price hikes—in an effort to stabilize domestic energy markets.

According to Bloomberg, the Vietnamese government announced last Friday that it would eliminate fuel import tariffs and grant state-owned energy group PetroVietnam greater flexibility in crude oil and petroleum product trading. The government stated that current supplies are “basically secure” but warned that markets could face greater pressure if the conflict extends into April.

South Korean President Lee Jae-myung announced at an emergency cabinet meeting on Monday that the government would impose price caps on petroleum products—the first time the country has used this administrative tool in nearly 30 years.

Driven by the escalating situation in the Middle East, South Korea’s financial markets have come under significant pressure. The Kospi plunged as much as 8% on Monday, triggering a circuit breaker for the second time this month. The Korean won weakened more than 1%, approaching the key psychological level of 1,500 per dollar.

## Vietnam: Tax cuts and deregulation to boost supply via markets

Bloomberg reported that Vietnam’s removal of fuel import tariffs and relaxation of import quota restrictions on PetroVietnam are aimed at cutting procurement costs, attracting more imported cargoes, and improving supply flexibility.

Pham Luu Hung, chief economist at SSI Securities, said the looser controls on PetroVietnam will give the company more room to balance supply and demand.

Vietnam currently produces about 180,000 barrels of crude oil per day, far short of domestic consumption. Its two major refineries are operating steadily: the Dung Quất refinery is running at about 118% capacity, to be maintained at least through the end of April; supply contracts for the Nghi Sơn refinery also cover through March. The government has simultaneously ordered the Ministry of Industry and Trade to take proactive steps to ensure adequate supply and prioritize crude oil access for domestic refineries.

However, signs of supply tightness have emerged at the retail level. According to VnExpress, RON‑95 gasoline has risen from VND 20,151 per liter at the end of February to VND 27,040 (around US$1.06), while diesel has surged nearly 57%—both at their highest levels since 2019. The government raised retail gasoline prices twice within three days. Dan Tri reported that dozens of gas stations in Hanoi have temporarily closed or shortened hours due to consumer panic buying.

## South Korea: Price caps revived after 30 years

South Korea has opted for more direct administrative intervention. In his opening remarks at the cabinet meeting, President Lee said heavy reliance on energy imports from the Middle East made the current crisis “a major burden on our economy” and that the government would “swiftly and boldly implement” price caps on petroleum products. He also announced that South Korea would actively seek alternative energy supplies outside the Strait of Hormuz to reduce dependence on Middle Eastern shipping lanes.

This marks the first time in nearly 30 years that South Korea has imposed price ceilings on petroleum products. For market stabilization, Lee proposed expanding the scope of a KRW 100 trillion market stability program and ordered the government and central bank to prepare additional responses to persistent volatility in financial and foreign exchange markets.

Reports indicate South Korea plans to launch the fuel price cap policy this week and is considering expanding fuel tax cuts.

Taiwan of China has taken a similar price‑buffering approach. Local media reported that it will set a weekly cap on oil price increases, with the government covering excess costs to stabilize prices for households and businesses.

## Bangladesh curbs demand to cope with crisis

Economies with even higher energy import dependence have begun directly suppressing consumption.

The Bangladeshi government announced that starting March 9, all universities nationwide would close early and Eid holidays would be brought forward to reduce electricity and fuel consumption.

Officials noted that university dormitories, laboratories and air‑conditioning systems consume large amounts of power, and early closures would help ease pressure on the power grid.

Bangladesh relies on imports for about 95% of its energy. Recent natural gas shortages have forced four out of five state‑owned fertilizer plants to halt production, freeing up gas for power generation.

The government has also restricted daily fuel sales and purchased liquefied natural gas at high prices in the spot market to fill supply gaps.

A senior energy ministry official said: “We are doing everything we can to reduce consumption and ensure stable supplies of electricity, fuel and imports.”

## Japan prepares to release strategic oil reserves

On the supply side, Japan is preparing for a worst‑case scenario.

The Japanese government has ordered the Shibushi National Oil Reserve Base in Kagoshima to prepare for a possible crude release. Multiple officials have confirmed this as one of the clearest signals to date that reserves may be tapped.

Japan imports roughly 95% of its crude oil from the Middle East, with about 70% passing through the Strait of Hormuz. Any disruption to the channel quickly raises supply risks.

Japan holds about 260 million barrels of government strategic reserves. Combined with corporate inventories and joint storage with Middle Eastern producers, total stockpiles reach around 440 million barrels—equivalent to roughly 204 days of imports.

If Tokyo ultimately decides to release reserves, a key market focus will be whether it acts unilaterally, bypassing coordination by the International Energy Agency (IEA).

## Gulf shock far larger than Ukraine war; Asia hit hardest

The scale of this energy shock far exceeds previous episodes. Market analysis estimates that export losses from the Persian Gulf are nearing 17 million barrels per day—roughly 17 times the peak Russian supply loss during the 2022 Ukraine war. Oil price volatility has soared to an extreme level above 100.

Goldman Sachs analysis shows that Asia, as the world’s largest oil‑importing region, is facing an uneven impact. Singapore is under the most severe pressure, followed by South Korea. Under an $85 oil scenario, GDP growth drag already reaches 1.6 percentage points; with Brent now above $100, the actual impact could be even deeper.

Against this backdrop, Asian economies are using diverse tools to confront the same pressure. But if high oil prices persist, whether subsidy gaps created by price controls can be sustained by government finances will become a core risk variable closely watched by investors.

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