The Zhitong Finance App notes that after supply disruptions caused by the war heightened energy security concerns, Saudi Arabia and the UAE will support an initiative led by Japan to strengthen oil supply in Southeast Asia.
Saudi and UAE officials attended the Asian Zero Emissions Community (AZEC) special meeting on Thursday. Ministers from AZEC's 11 partner countries (including Japan, Indonesia, and Australia) gathered in Manila to discuss cooperation in oil procurement and strategic reserves. The framework was initiated by Japan to promote regional collaboration in the field of energy transition and security.
Japan's Deputy Minister of Economy, Trade and Industry Kei Takagi told reporters in Manila, “Both Middle Eastern countries have expressed their will to cooperate in strengthening oil storage capacity in Asia.” “We will further deepen cooperation and strengthen energy security.”
Member States have adopted the AZEC Ministerial Work Plan to strengthen oil reserves and enhance participating countries' ability to cope with potential supply shocks.
In April of this year, Japan announced that it would provide $10 billion in financial support to Southeast Asian countries suffering from soaring crude oil prices and supply disruptions in the Middle East war. Prime Minister Takaichi Sanae's initiative covers oil procurement, storage, and emergency reserve assistance, and is intended to strengthen the region's ability to withstand future shocks.
After the US-Iran war broke out in late February, Asia bore the brunt of supply disruptions. The conflict revealed Southeast Asia's long-standing weakness: the region is highly dependent on imported oil. Before the conflict, more than half of the region's crude oil imports came from oil producers in the Persian Gulf, and about 90% of Japan's oil came from this region, most of which was transported through the Strait of Hormuz.
The closure of the Strait of Hormuz has caused costs to soar, causing serious shortages, forcing some refineries to cut processing volumes, and some governments to implement fuel allocations, prompting policymakers to re-evaluate energy security strategies.
“The recent turmoil in the global energy market, particularly the interruption of the Strait of Hormuz, a key gateway, has strengthened the importance of all parties improving their collective ability to cope with energy supply shocks,” Philippine Energy Minister Sharon Garin said at a joint briefing with Kei Takagi.
Vulnerabilities still exist. Most ASEAN member countries' oil reserves are still relatively thin, and the price of crude oil above $100 per barrel makes it expensive to rebuild reserves.
The proposed framework may allow purchasing countries to negotiate bilateral supply arrangements with Middle Eastern oil producers. Such agreements will also benefit Persian Gulf suppliers, enabling them to deploy more crude oil closer to Asian customers.