Asia/Pacific News
Oil Shock Would Hurt Asia Most
A disruption in the flow of oil from the Middle East would threaten Asia more than Europe or the United States, according to a new report from the UK's Chatham House think tank.
The paper analyses the effects of a hypothetical halt to oil supplies' passage through the Strait of Hormuz and investigates the capacity of various countries to maintain oil supplies by drawing down stocks or outbidding competitors for limited available supplies.
"Every Asian government would inevitably respond to a major disruption of oil supplies," Chatham House says.
"Uncertainty about governments' interventions would add to the risk premium generated by uncertainty about physical supplies."
The paper suggests the establishment of policies to address these uncertainties, including developing ways for oil exporting companies to hold stocks in importing countries, clarifying exporters' policies for allocating supplies in the event of disruption, developing mechanisms to rapidly release emergency stocks, promoting government and industry cooperation, and creating a process to facilitate a rapid response from the International Energy Agency (IEA), China, and India.
Report author John Mitchell said Asian countries import almost 30 percent of their oil, mostly from South Korean, Singapore, and Indian refineries, which get more than half their feedstock from the Middle East, Reuters reports.
"How product-exporting companies and countries chose to allocate reduced supplies would affect Australia and Thailand in particular," he said.
Mitchell said China is more secure than other Asian countries because of its domestic oil production and more diverse oil supply, but the lack of oil stocks in other countries, particularly India, could present problems.
"The Indian government is building storage for oil stocks, but this is not yet being filled," he said.
"And the cost of doing so is a deterrent.
"At the other extreme, the Chinese government is not only building storage but is also filling it, and aims to achieve IEA levels of storage of 90 days' worth of imports within a few years."
Australian refineries have come under pressure from larger, more modern operations in East Asia.
