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The fallout from the US-Israel-Iran war has reverberated across Southeast Asia, from gas supply disruptions to volatile oil prices. Nailah Huda speaks with Prof. Dr. Norasikin Ahmad Ludin and Dr. Brice Tseen Fu Lee to understand whether crises like this accelerate or delay the energy transition in the region.
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00:07This is Awani Global with me, Nailah Huda.
00:09From gas supply disruptions to volatile oil prices,
00:13fallout from the US-Israel-Iran war has reverberated through most of Southeast Asia.
00:19But how much of the region's vulnerability is due to oil prices rising?
00:23Or does this point to much deeper structural issues, particularly due to the region's developmental model?
00:30And more crucially, do crises like this accelerate or delay the energy transition for the region?
00:37To unpack some of these questions, we have joining us,
00:40Prof. Noor Ashikin Ahmad Ludin, Professor in Renewable Energy at Solar Energy Research Institute,
00:44Suri, Universiti Kebangsaan Malaysia.
00:46And also with us, Bryce Sin Fuli, Research Fellow at the Department of International and Strategic Studies,
00:51University of Malaysia.
00:53Thank you so much, Prof. Noor Ashikin and Bryce for joining us on Awani Global.
00:57Maybe I'd like to start with Bryce first.
01:00How do you describe, how do you see the overall energy crisis facing Southeast Asia at the moment
01:06as a fallout of the war and the crisis that we're seeing in the Gulf?
01:11How exposed do you think Southeast Asia is to disruptions that we're seeing right now,
01:15particularly with the closure of the Strait of Hormos?
01:20First, thank you for having me here.
01:22But I would describe it as a Middle East conflict, basically,
01:26that is already being currently transmitted to Southeast Asia.
01:30The Strait of Hormos is actually one of the biggest critical energy choke points in the world.
01:35And it produces around 20% of the global oil and gas,
01:39and around 80-ish percent goes to Asia, the Asian market.
01:43So, it is extremely important, and it definitely affects us in Southeast Asia.
01:49Southeast Asia did not sign up for the war, but unfortunately, we are still getting the energy bill.
01:56So, yeah, the historical comparison is probably the 1973 oil shock,
02:01and we are seeing a similar pattern at the moment.
02:06Prof, what are your thoughts on this? How exposed do you think is Southeast Asia right now
02:10to the fallout of the war, particularly the closure of the Strait of Hormos?
02:15Thank you, Na'ilah. It is a pleasure to be here on Awani Global.
02:20You know, when I wrote my recent piece with bernama title
02:24Hormos Tension Wake Up Call to Strengthen Malaysian Energy Resilience,
02:28I hope it wouldn't become reality this quickly, but here we are.
02:32So, what we are seeing now is, I can say it is unprecedented.
02:37So, the closure of the Strait of Hormos, which is a shock point for about 20% of the global
02:44LNG supply,
02:46is not just another geopolitical headline, it is a structural shock to our region actually.
02:51So, Asia is uniquely vulnerable because our energy security has been outsourced to the Middle East for decades.
03:00So, this crisis is essentially a stress test for our economies and the initial results show that we are not
03:08as resilient as we thought.
03:11But as I argue in the article, this is also a critical opportunity to finally push through the reform that
03:19we have been delaying for years.
03:21And to describe the current crisis, we have to look at the, actually to the numbers.
03:27The Strait of Hormos is effectively closed.
03:32This has actually removed a significant portion of global oil and gas supply from the market.
03:40Based on, I think the latest report by the IEEFA or the Institute for Energy Economics and Financial Analysis,
03:48we are looking at 21% of global LNG supply being disrupted, which the price jumped 51% as early
03:58March.
03:59So, Southeast Asia exposure is severe because we are net importers.
04:06Then, there is a report by the Malayan Banking Berhad highlighted at the Philippines actually gets about 95% of
04:14the crude from the Gulf,
04:15while Vietnam relies on the region for nearly 88% of its crude and 49% of its gas.
04:24But it is not just oil, it is the physical supply chain.
04:30As I noted in my bernama articles, the risk isn't just price, it is the actual availability of the tankers,
04:38the war risk insurance and the logistics.
04:40So, if the Strait remains blocked, we are looking at a potential, we call it physical shortage of diesel and
04:50jet fuel within weeks, not months.
04:53Bryce, earlier you were drawing some parallels between what's happening now and what happened in the 1970s with the world
05:00oil crisis and its impact on Southeast Asia.
05:03But what we are seeing in our region right now, to what extent do you think this is just an
05:08energy crisis?
05:09Or do you think this points to a much deeper structural systemic economic shock for the whole region?
05:17So, basically, this is a very nice question, thank you. It started basically as an energy crisis, but it is
05:23already becoming a broader systematic economic shock.
05:27So, energy is the entry point. Once oil and gas price rises, they feed into transport costs, manufacturing, electricity generation
05:35and household consumption.
05:37Everything in the world is run by electricity and energy. Basically, we need energy to move, we need energy to
05:43do everything, even fertilizers is produced by methane gas.
05:48So, reports are already showing basically that there's like slowing factory production activities in Vietnam, Indonesia and the Philippines, which
05:58shows that the shocks are actually moving beyond the energy crisis, but into the wider economy.
06:03So, food prices might slowly increase over time. This is basically how a crisis works.
06:09They enter through energy, then everything else suddenly wants to be a part of it, unfortunately.
06:15One of the previous crises is also like the Asian financial crisis, where financial shock became a political and social
06:22crisis once it reached household goods.
06:25So, once our groceries are expensive, everyone will start complaining, social crisis will be there.
06:30Capital flight, which was part of the Asian financial crisis problems, could potentially happen as well.
06:36Because if businesses are too expensive to run, and costs are too expensive, nothing will survive and things will be
06:45back to how it was before.
06:48Prof, how do you see this energy crisis potentially flowing over across sectors?
06:54As Bryce pointed out, we're looking at fuel and inflation, of course, but also potentially into food, even social security.
07:01Do you already see this happening, Prof? And do you see this worsening over time?
07:07Okay. Actually, this crisis is transmitting like a domino effect, I can say.
07:13So, it starts with fuel, but this ends with the social stability.
07:18So, let me try to trace the line for you.
07:21First, fuel to logistics. Okay.
07:24So, we already seeing jet fuel shortage causing flight cancellation.
07:28For example, in New Zealand and Australia, which will soon impact the tourism dependent nation like Malaysia and Thailand.
07:36And second is logistics to food. So, for example, in Thailand, 35% of agriculture production costs are directly tied
07:45to petroleum products.
07:47So, as fuel prices rise, food prices follow.
07:53So, Thailand is facing a potential 20% spike in prices due to the fertilizer shortage.
08:00Finally, it's food to stability. Okay. So, when food prices go up, social tension rise.
08:09We already seen like the jeepney drivers go on strike in the Philippines and fishing vessel dock in Thailand because
08:17it costs more to fish than the fish are worth. Okay.
08:20In Malaysia, if the Budi Madani, we have Budi Madani subsidy programs, is strained by prolonged high prices, the anxiety
08:29among, especially for the B40 and M40 group will increase.
08:33So, this is why that our Prime Minister, we have, we call it the MTEN, the Prime Minister Economic Action
08:41Council meeting last week was so critical because they recognize that this isn't just an economic issue.
08:49It is actually a national security issue.
08:52Bryce, in your view, which countries in Southeast Asia do you think are at most risk and why?
08:59In Southeast Asia, unfortunately, I do think it's the Philippines.
09:05If I'm not mistaken, they have suspended spot electricity markets and electricity prices has risen for over like around 50%.
09:14They also introduced like a 20 billion peso emergency fund, which can cause fiscal strain from the government.
09:20And there's even talks about grounding planes, totally grounding planes.
09:23And even they're the host of the Asen Summit this year.
09:27And I've seen reports that they are thinking of making it virtual.
09:31So, and also they recently discussed COVID-19 measures like stay at home work and whatnot.
09:37And I think Malaysia has been discussing this as well.
09:39So, this shows that there's government intervention at play at the moment, and they are trying to reduce consuming too
09:48much fuel so that the economy can run a bit more stable in the future.
09:52And it is an issue.
09:54And I do worry because there are talks and whatnot in Iran at the moment about more troops on the
10:02ground or potentially troops on the ground.
10:04And Trump has been very uncertain about what he wants to do in Iran.
10:08So, I do believe that we should brace ourselves basically.
10:14You describe some of the responses that we're seeing from governments in Southeast Asia.
10:19And if I can refer to your recent article on the diplomat, you were talking about how Southeast Asian governments
10:27tend to use their past experience to approach this crisis.
10:30And you describe this as path dependent.
10:34Can you tell us a little bit more about that?
10:36So, basically, we have been always looking at short-term solutions.
10:41We have faced so much crisis throughout post-dependence, when we were independent basically.
10:50And then we have never found a long-term solution.
10:53We have faced COVID recently, but we didn't create a long-term solution when we were facing COVID.
11:00The Asian financial crisis as well, we had a lot of issues back then.
11:03And this is not the first time we were facing an energy crisis.
11:07We should have a blueprint for long-term solutions long time ago.
11:11But every time a crisis comes, we just try to put a plaster or Band-Aid over it and not
11:16invest in long-term solutions, which I do believe is an issue.
11:21And I do think that there are a lot of blueprints that are available in Southeast Asia.
11:26There are a lot of pioneers, but we have never really fully invested in these programs or pilot programs to
11:31see how they can go and whatnot.
11:35Prof, do you agree with this perspective that some of the responses that we're seeing in Southeast Asia, like subsidies,
11:42price controls, do you think these are effective tools of crisis management or they're rather short-term Band-Aid solutions
11:50to a much deeper problem?
11:53Prof, do you think this is a million dollars question?
11:56I think in short term, subsidies and price controls are politically necessary to prevent social unrest.
12:05Because we saw that Thailand are capping fuel prices and the Philippines are giving cash hand out to tricycle drivers.
12:12So this measures by time.
12:15However, in the long term, the reinforced vulnerabilities, blanket subsidies must the true cost of the energy.
12:24So when consumers don't feel the price signal, they have no incentive to conserve energy or switch to solar, for
12:33example.
12:33So in my bernama article, I argue that Malaysia energy security strategy must be faced.
12:40We cannot sustain blanket subsidies.
12:43So we need to move towards targeted subsidies.
12:48For example, like the Budi 95 system.
12:51But we also need to introduce cost reflective tariff, especially for the industries.
12:57If we keep electricity prices artificially low, our tenaga national berhad and the government bear the debt, which limits the
13:08ability to invest in the grid upgrades needed for the energy transition.
13:14So we saw in Thailand where EGAT is sitting on Thaibat 36 billion in debt from the last energy crisis.
13:24So we are at risk of repeating that cycle if we don't reform now.
13:31That's my opinion.
13:32Yeah.
13:32I think, Prof, that brings us to another billion dollar question, whether or not we're ready for energy transition.
13:39Or do you think, Prof, it doesn't matter whether or not we're ready, but it's something that we need to
13:44do now regardless of our readiness,
13:46regardless of the infrastructure, the political will that we have.
13:49Do you think that this is a push that must happen now?
13:51Do you think there's a window of opportunity, Prof?
13:54I think when we talk about the acceleration or the delay of energy transition,
14:06I can use Thailand example to argue for the acceleration.
14:12And also we try to link with our SMR and B30 and B40, these comments, right?
14:20So conventional wisdom actually says that crisis delayed the transition because government fall back on cheap coal.
14:28Okay.
14:29But I believe this specific crisis could actually accelerate the transition in Southeast Asia if we are smart about it.
14:37Okay.
14:37So, for example, like I said, the example of Thailand, their reliance on LNG has become a strategic vulnerability.
14:46So the latest report by the IEFFA suggests that this crisis is a wake up call for Thailand and not
14:59only for Thailand,
15:00I think for all the Southeast Asia country to set more ambitious renewable targets in their upcoming power development plan.
15:06So they are realizing that for Thailand, they're paying that 23.50 per mm BTU for LNG is not actually
15:15sustainable.
15:16So in case of Malaysia, as I noted in my previous article, the long term solution lies in speeding up
15:26domestic resources.
15:27This means accelerating our B30 and B40 biodiesel programs to reduce the diesel imports because we know that the current
15:36price of diesel has had to RM6, right?
15:43So it means investing in the ASEAN power grids to import hydropower from Laos.
15:48And critically, it means looking at the another part is our nuclear, which is a small modular reactors or SMR
15:56and also the green hydrogen.
15:58So this crisis, I can say that makes the business case for this technology much stronger because the fossil fuel
16:07alternative now too expensive and too geopolitical risky.
16:14Bryce, what are your thoughts on this? You were talking about the need for much longer term solutions.
16:19Do you think that the crisis that we're facing right now is a big enough of a wake up call
16:24for the region to consider deeper energy reforms?
16:29Oh, definitely. I think this creates an opening for reform, especially through diversifying suppliers in the short term.
16:36I remember we are importing fuel from Brazil at the moment. These are short term solutions and to long term
16:45solutions like green energy and whatnot.
16:48Actually, what's interesting is that Malaysia do have the blueprint for these things.
16:53We have, if I'm not mistaken, there are wind farms in Sabah, which is headed under Datok Atsmir, I think,
17:01if I'm not mistaken.
17:02And even Sarok pushed for hydrogen energy under Abangzhou.
17:07I remember I was invited to a project in Miri, Kenyalang Smart City, if I'm not mistaken, and they were
17:14trying to propose the usage of hydrogen buses.
17:16So basically, there are pioneers in these fields. And I do believe that there is the blueprint, blueprint ready in
17:24Malaysia already.
17:25You just have to basically implement it. So there are a lot of research in this.
17:29But implementation is always very far behind because maybe one, it is expensive, but it is a long term investment
17:36and it will be cheaper over time because fuels to rely on the Gulf for straight up hormones is such
17:44a risky thing to do.
17:45And we do not have the energy security to always rely on the straight up hormones, basically.
17:53This also raises a question of regional integration as a means of building resilience across the whole region.
18:01Maybe we can start with Prof. What do you make of proposals to strengthen regional integration on the energy front?
18:08Of course, we've heard the idea of the ASEAN power grid. Do you think this is a time for us
18:12to push through with this?
18:14I think that's a good point since that now we can say that the proposal like the ASEAN power grid
18:21are not longer just nice to have because it's just like a plan before, right?
18:26So they are existential necessities now. So the good news is that we are seeing real tangible progress even in
18:34the middle of this crisis.
18:35I think just in this January, our TNB, Tenaga National Berhad signed the Energy Willing Agreement Phase 2 with EGAD
18:43of Thailand and EDL of Laos.
18:45So this means a major step for the Laos, PDR, Thailand, Malaysia, Singapore Power Integration Project or LTMSPIP, we call
18:56it, which is now allowing up to 200 megawatt of renewable energy from Laos to flow to Singapore with Malaysia
19:07actually acting as a wheeler.
19:09So this is a perfect example on how we build resilience. By connecting our grids, we allow countries with abundant
19:18hydropower, for example, like Laos, to share with those facing fossil fuel shortage like Singapore.
19:25For Malaysia, this position uses us as a regional hub because we are the center for energy trading.
19:32But we need to move faster. As the Deputy Prime Minister noted at our recent, I think, forum, I read
19:42it from the newspaper.
19:43We must align our transmission phase, technical standard and regulatory regimes.
19:47So this crisis actually push, should push ASEAN to finalize this detail so that by the time the Vietnam, Malaysia,
19:56Singapore, especially offshore wind initiative come online by 2034,
20:00so we have the grid ready to accept it.
20:04Prof, I'd be interested to hear your thoughts on diversification.
20:09I think Bryce pointed it out, not just of energy sources but perhaps looking to different trade routes, maybe different
20:17geopolitical partnerships.
20:18I think this was already on the table, especially following the US tariffs last year.
20:23You know, much of Southeast Asia were looking towards not just China but even other frameworks like BRICS and GCC.
20:30Do you think that this is something that should also be considered given the current crisis diversification of one of
20:36which includes energy sources?
20:39Yes, I think the diversification is very important since that when, because when we are too rely on the fossil
20:50fuel base,
20:51so we are at the risk actually when there is something happen on this like, for example, our war, our
20:58current war now.
20:59So when we have diversified resources, then we can have alternative options, especially when we use our local resources or
21:10we have to increase the local content.
21:11So we have to identify, if we want to have another, I mean, resources from the outside, maybe the countries
21:23that we think which is not in the, I mean, very close to that war.
21:29For example, we can have like from Papua New Guinea and Australia, okay, which is very far away from the
21:36war.
21:36So that's I think the diversification of the resources is very important, not only for local content, but also for
21:43the, for the country neighborhood.
21:47But we have to ensure that our current resources or local resources, we have to optimize it to ensure we
21:55are not depend on the, I mean, outside from other country.
22:00Bryce, moving forward and looking ahead, what do you think are some of the key warning signs that we should
22:06look out for?
22:07In order to determine that the situation is not just an energy crisis, that it's moving beyond towards perhaps a
22:14broader economic or even social crisis.
22:16What do you think are some key patterns or signs that we need to look out for?
22:22So there are basically what I think is there are a chain, is there always a chain reaction, one, energy,
22:29two, inflation, three, fiscal strain, because the government subsidize a lot of things, and then food and social stress.
22:37And it's all linked. And we have seen it plenty of times before. And now we are basically at the
22:43first stage. And if this, if the war goes on, and the Strait of Hormuz is closed, we would go
22:48into inflation.
22:49And we are seeing a bit of hint of inflation recently. And it's all over Southeast Asia. And then I
22:55do believe that the government will not be able to subsidize this for a long, for forever, basically.
23:00And it will basically impact all parts of society, business will soon close, and they cannot afford to keep open
23:06because the cost of living, I mean, cost of food and gas and energy is too high.
23:11So these are the telltale signs of a bigger crisis other than just an energy crisis.
23:19Following that, how do you think this crisis might evolve over the next six to 12 months? And do you
23:24think if it does prolong to that extent, how do you think Southeast Asia might respond to that?
23:31Well, this is the big question. It's unfortunately not up to us. It's up to the US at this point,
23:41because honestly, before the US went to the Iran war, they were, at better terms, they were, Iran was negotiating
23:49with their neighbors, they were willing to let people look into their nuclear program and whatnot.
23:55And once the US attacked, they did not do as well as expected. This was not another Venezuela. They could
24:02not just kidnap the president or the leader of Iran. They had killed him, but it was replaced straight away.
24:10And now Iran is in a better position. They have more leverage over everything. And from recent terms, he had
24:16the 15 point terms and which was to give up their missiles, their nuclear program and whatnot.
24:22And I don't see a reason why Iran would do that. They're in a better position now. The US has
24:27no leverage. And hopefully this is over soon, but I do not see it happening anytime soon.
24:34And I do believe that Southeast Asia, we need to take the hit, unfortunately, and we have to embrace ourselves
24:43and prepare. It is unfortunate, but I do not see good things happening. But I do hope that good things
24:51are happening, will happen in the future.
24:54On that note, we'd like to end the discussion today. Thank you so much, Bryce and Prof. Nora Shikin for
24:59joining us on Awani Global.
25:01That is all this week as we look to the energy crisis in Southeast Asia, the fallout of the US
25:07-Israel-Iran war.
25:08Plenty more will bring you from time to time, but that is all this week with me.
25:12Hello, that will catch you next time.
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