War in Middle East causes oil shortages in parts of Asia

Here in the U.S., gas prices are above $4 a gallon, dragging economic growth down. But most analysts do not think it will take us to recession territory.

That is not the case elsewhere in the world. Countries that had no role in the ongoing war in the Middle East are paying a heavy price. This is particularly true in Asia.

“Marketplace Morning Report” host Sabri Ben-Achour spoke with Clara Gillispie, senior fellow for climate and energy at the Council on Foreign Relations. The following is an edited transcript of their conversation.

Sabri Ben-Achour: The Philippines declared a national emergency a week ago. You had news anchors in Thailand urging people to use their [air conditioning] less, and, you know, taking off their suit jackets on the air because they weren't running their AC. It just sounds like the consequences are very palpable for people there in a way that we're not seeing here yet.

Clara Gillispie: They are and they're fairly immediate in multiple ways. So, you have, for example, the Philippines is virtually fully reliant on imported oil to meet its needs for that fuel. So, this disruption hits fairly immediately and directly. It's also one that has historically done less to subsidize the price of fuels, so it more directly and quickly hits consumers as well. But it's going to start to show up in state budgets as well and have knock on effects on the health of different economies.

Ben-Achour: Why are the disruptions so much worse there?

Gillispie: Asia is heavily reliant, in a direct way, on imports from the Middle East. So, when you talk about the flows of oil and natural gas that come through the Strait of Hormuz, about 80% of both of those end up directly in this region. But we're also talking about some of the world's largest consumers of energy.

Ben-Achour: Are there alternatives, like stockpiles, or could they get energy from somewhere else?

Gillispie: Different countries do have some fairly substantial stockpiles, but not all in this region. So, talking about below 50 days, in some cases. At the same time, you also do have an effort to look more globally and see where there is potentially additional cargoes available on the spot market or through other supply. The challenge there is not always that there isn't that supply available, but different kinds of oil also have different grades and abilities. So, you have light and sweet versus sour and heavy, which can shape how different economies have built their refineries, their manufacturing capabilities to make use of this.

Ben-Achour: So basically, not all oil is created equally, and not all countries are able to process all oil.

Gillispie: That's correct.

Ben-Achour: What about alternatives, like either renewables or nuclear or other fossil fuels like coal?

Gillispie: In the near term, a number of countries, do have underutilized capacity in coal. You also see a number of countries, and I'm thinking of the Philippines and Indonesia, in particular, note that they're still continuing to prioritize and focus on those energy transition goals.