The global energy crisis is tracking towards its worst-case trajectory, two months after the effective closure of the Strait of Hormuz.

The combined effects of high energy prices on household budgets and the inflation in food prices born of greater energy and transport costs, as well as a shortage of chemical fertilisers, will punish households that spend larger shares of their budgets on food. The human costs of this are significant: The World Food Programme estimates that prolonged oil prices above US$100 could push 9.1 million people in Asia into ‘acute food insecurity’ — a 24 per cent increase.

The direct impact on the real economy is being felt unevenly across the region for now, but nowhere is immune from the economic fallout because of the interconnectedness of this crisis. In Southeast Asia, existing debt vulnerabilities are being compounded in ways that will demand flexibility from foreign lenders and new risks are emerging in places like Indonesia where subsidy burdens and currency exposure are straining macroeconomic buffers. Energy cost pressures and shortages in one country will be felt in others as they break the weak links in regional supply chains.

Nobody is a winner here, but there are some that see a strategic silver lining. As Erica Downs writes in this week’s lead article, the crisis ‘may accelerate China’s emergence as a global provider of energy security’. In China the conflict is seen as ‘providing a strategic opportunity … to boost its exports of clean energy technologies’ that are central to other economies’ transitioning away from fossil fuels.

In the long term that is undoubtedly true, but in the short term China has been an additional source of energy risk. Its refineries remain a critical source of fuel across the region, leading to alarm when Beijing banned fuel exports in mid-March to safeguard domestic reserves — although it has allowed, and is widening, ad–hoc exceptions for key customers. Economically vital energy trading relationships should not have to rest on the quality of political relationships when supply chains are under duress.

Another stream of energy diplomacy is paying dividends for Russia. The European Union has watched with alarm as Southeast Asian governments have followed India in reaching out to Moscow for fuel and fertiliser deals — the EU’s foreign policy chief Kaja Kallas warned them to see the ‘big picture’ and eschew such deals. That’s a somewhat tin-eared message to send in a region where governments have little of the economic leeway Europe had in 2022 to absorb the post-Ukraine energy shock of this scale and will take oil from whomever is flogging it.

Yet the ‘big picture’ is indeed a dispiriting one: the energy emergency in our region has seen Vladimir Putin emerge as a principal beneficiary just when Western sanctions were beginning to jeopardise his onslaught in Ukraine. Combine this with China’s centrality in moving beyond the fossil fuel dependency that underpins this crisis and it’s clear that the second-order effects of the Iran war spells a slow-moving geopolitical catastrophe for Washington.

The International Energy Agency’s 2026 Energy Crisis Policy Response Tracker shows that the response of regional governments on the home front has largely been to subsidise demand for fossil fuels. In its most recent assessment of Asia’s economic resilience, the IMF warned that such a strategy smooths inflation in the short run but is expensive, regressive and hard to unwind. It’s better, and fairer, to provide households and businesses with targeted cash transfers and tax relief rather than locking economies into fossil fuel dependency even further.

The proper long-term path forward involves three key pushes, none of which are quick or easy. One is at least relatively cheap: making sure that regional trade rules ensure that green energy and transport tech is both abundant as an input and a source of industrial growth. The second is expensive: developing new vehicles for closing the financing gap that stands between developing Asia and freedom from fossil fuels. The third is politically fraught: structural reform to national energy markets to boost the commercial viability of private investment in renewable energy, whether backed by private capital or public green finance initiatives.

The hope is that the scramble to secure oil and gas supplies and control the cost of fossil fuels does not consolidate fossil fuel dependence but rather buys time for gearing regional cooperation towards the longer-term goal of transition to a more secure renewable energy future.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Law, Policy and Governance, The Australian National University.

https://doi.org/10.59425/eabc.1777881600