Asia’s growing dependence on Middle Eastern oil has amplified the risks it faces if the Strait of Hormuz is suddenly shut, making it more vulnerable to such a disruption than other regions, U.K. think-tank Chatham House said on Wednesday.
Asia is more at risk than Europe and the United States to a cut in Middle Eastern supplies as it buys 75 percent of the region’s oil exports, said Chatham House energy security expert John Mitchell in a report - Asia’s Oil Supply: Risks and Pragmatic Remedies.
Despite Iran’s threat to shut the key Strait of Hormuz shipping route for Middle East oil in 2012, Mitchell said most Asian countries have not built up sufficient reserves to cushion the impact of a disruption. A strong reliance on oil product imports in Asia has also heightened their risk, he said.
Asia countries import nearly 30 percent of their consumption needs, mostly from refineries in South Korea, Singapore and India, which are in turn dependent on the Middle East for more than half of their crude supplies.
“How product-exporting companies and countries chose to allocate reduced supplies would affect Australia and Thailand in particular,” said Mitchell, who started his career in with U.K. oil major BP Plc in 1966.
Australia has seen a series of refinery closures, and by 2015, it is expected to become the largest net importer of diesel and second-largest net importer of gasoline in Asia, importing more than half of its fuel needs.
Product-importing countries, particularly Australia and Thailand, could face shortfalls of 5-10 percent of consumption in the event of a significant disruption to Middle Eastern supplies, Mitchell said in the report.
If Middle East oil producers choose to look after their own, by supplying to joint venture refineries in Asia and the United States first, however, this could lessen the impact of a disruption at the expense of European countries, he said.
Low levels of oil stocks, especially in India, remained a worry, Mitchell said, adding that there needs to be greater coordination on emergency oil stocks release among the International Energy Agency, China and India.
The burden of a spike in oil import costs will be greater on South Asian countries - Pakistan, Sri Lanka and India - as more than 30 percent of their revenues from non-oil exports were used to pay for oil imports in 2012, the study showed.
“In theory China could cover a 50 percent increase in the price of oil imports by drawing down foreign reserves at about 3 percent annually for 30 years,” Mitchell said.
“Pakistan’s reserves would be exhausted within one year and those of India, Australia and Sri Lanka within about five years,” he said, Reuters reports.
