India and China will likely be less vulnerable to oil price shocks, as coal provides over half their energy needs.
The timeline by which rising oil prices will have a significant impact on Asian economies is a major concern of policymakers.
A blockade of the Strait of Hormuz has been imposed by the conflict between Israel and the US, as well as Iran.
As the blockade continues, oil and gas supplies are disrupted.
In a recent report, Deepali Bhargava said that if supply disruptions continue for a full month, and then ease off over the course of the year, Brent crude oil will average US$83/bbl. This is about $15/bbl more than 2025’s baseline.
Asia has a wide range of energy adequacy
According to ING’s previous analysis of imported exposures, Thailand’s trade deficits for these commodities and the resulting price rises are likely to put them at greatest risk.
Taiwan, Singapore, India, and the Philippines also have notable vulnerabilities, though they are diverse.
These vulnerabilities are influenced by the domestic buffers in a country and their pricing policy.
Asia has a wide range of energy reserves.
Japan has the largest cushion with enough reserves to cover 254 days’ domestic consumption.
South Korea is next with reserves of 210 days.
India has reserves of approximately 74-days.
Bhargava stated that while oil stocks appear to be sufficient for the short term, LPG reserves are still very thin. This makes them more vulnerable to supply interruptions or price increases.
Following the war, the 70% increase in LNG price has affected heavily-dependent economies, such as Thailand, India and Japan, which are highly susceptible to future price fluctuations.
India and China benefit from coal dependence
Fuel substitution is a key distinction in the entire region.
India and China have a natural shock absorber because coal is still the main source of energy in both countries.
Bhargava, in his report on the matter, said that “although both countries remain net importers of coal they have an important advantage because their ability to replace oil with coal provides a cost benefit.”
According to ING, the price of natural gas has risen by 70% in the last year. This is a dramatic contrast from the 12% increase seen for coal over the same time period.
This divergence provides India and China with a significant substitution buffer, which could help reduce the risk of oil and gas prices rising to a certain extent.
Market impact
Singapore, Korea and Taiwan have substantial surpluses on their current accounts, which serve as an important buffer.
Thailand, on the other hand, has a much smaller surplus, which provides less protection from these increased costs.
India and the Philippines have structural deficits in their current accounts, but New Delhi managed to limit its deficit in recent years to around 1% of gross domestic product.
Bhargave says that the risk profile can be further complicated by the foreign exchange reserve (FX).
Malaysia, Indonesia and South Korea have relatively low FX coverage compared with their import needs, increasing their vulnerability to sustained increases in crude oil price.
Bhargava noted that the Philippines and India, with their robust FX reserves, are better able to deal with currency pressures if oil related outflows continue to increase.
According to the expert, for the moment, the oil price risk appears manageable, because the oil marketing companies currently absorb the increasing crude costs rather than passing them onto retail prices.
We are therefore maintaining our CPI forecast and expect the inflation rate to remain below RBI’s medium term target of 4% by 2026.
Bhargava said that the INR is still vulnerable, because the increase in crude oil prices will likely lead to a wider current account deficit and further pressure on the currency.
The post India and China are less vulnerable to oil shocks now, but coal dependency is a key buffer.
