How Asia Became the Frontline of the Global Energy Crisis

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1:54V. Bauer. I okay. This is Fassi Mangi. He's Bloomberg's beer chief in Karachi, Pakistan. He's at a gas station right now, topping off his car before the government raises fuel prices yet again. In the U.S. and the U.K., fuel prices rise and fall with the market. But in Pakistan, the government adjusts them on a fixed schedule, typically every two weeks. So when Fassi heard that war had broken out in Iran and the Strait of Hormuz was effectively closed, he knew prices would spike. So his first stop, the gas station. So basically topped up right till the end. So, you know, when you put a pump to fill your car, it automatically stops.

2:45After it automatically stops, there is still some space to fit in a few more liters as well. It turned out to be the right call, because just days later, the government raised fuel prices by a record amount. It was the biggest increase in Pakistan's history by 21 percent, to be precise. And right before that, we saw that there were massive, massive long lines at fuel pumps. Like much of South Asia, Pakistan's economy is especially vulnerable to swings in global energy costs. The country imports most of its fuel, with the vast majority of those imports coming from Gulf countries. So when supply routes like the Strait of Hormuz are disrupted, the shock hits hard at home.

3:32Tonight, Pakistan increased fuel prices. It was, you know, chaos at fuel pumps. We saw that there were massive, massive long lines. There were scuffles at fuel stations. There were violence in multiple places as well. And food pumps actually run completely dry. After oil prices surged past$100 a barrel, Pakistan's government rolled out more than a dozen fuel-saving measures. Officials also said they would begin adjusting prices more often, now weekly, to keep pace with the volatility. Part of the measures that we've taken in terms of conservation and austerity include a four-day work week, a lot of work from home, a substantial reduction in government...

4:16Last week, Musharraf Zaidi, the spokesperson for Pakistan's prime minister, told Bloomberg that the government was bracing for prolonged energy shocks. We're also very conscious of the negative impact of this conflict, not just on Pakistan, but on the whole region. The Asia region as a whole is actually feeling it very acutely, especially if you compare it with the rest of the world. Clara Ferreira Marquez is Bloomberg's managing editor for commodities and energy. in Asia. And that's largely just to do with the way that flows through the Middle East are directed. But it is both a shortage problem and a price problem at the moment.

4:59Welcome to The Big Take Asia from Bloomberg News. I'm Wan Ha. Every week we take you inside some of the world's biggest and most powerful economies in the markets, tycoons and businesses that drive this ever-shifting region. Today on the show, how a global energy shock is rippling through Asia. We begin in Pakistan, where the government has responded with tough measures. Then we'll look at how other countries across the region are managing the knock-on effects of rising energy

5:39prices. Pakistan sits at the crossroads of South Asia and the Middle East. With few oil reserves of its own, it depends heavily on the Gulf for energy. Tankers loaded with crude oil, refined fuels, and liquefied natural gas stream across the Arabian Sea to keep the country running. Pakistan imports most of its energy needs. So basically, petrol, crude, diesel, LNG. If I look at Pakistan's biggest trading partners, the countries it imports from are UAE, Saudi Arabia, and Qatar. And primarily, it's energy. Pakistan is the world's fifth most populous country, with more than 250 million people. That sheer size drives an enormous demand for energy.

6:26And with most of it imported, Pakistan's government is doing everything it can to curb fuel consumption.

6:56has said that they will reduce their expenditure by 20%, which is quite significant. They're not going to use like half of their transport vehicles. And they're also going to reduce consumption by half in those government departments. What does that mean in terms of the day-to-day life now for many Pakistanis? It is manageable in the sense that I think, you know, we had the COVID crisis in which everyone learned how to do things remotely. The government has asked all private sector and public sector, only 50 % workforce should be going to the offices now. And students have been asked to have online classes in universities.

7:36These are COVID era measures to save energy that we haven't seen, obviously, since COVID. That's Bloomberg's Clara Ferreira Marquez. At that point, we were a week or so into the war. So it's very rapid and very extreme. And it is not only about shortages, it is about saving money. It is about subsidies that will be more expensive. It is about the strain to these budgets. The austerity measures may feel harsh, but this isn't the first time Pakistan has implemented them. Four years ago, the country went through a crippling energy crisis, fueled in part by Russia's invasion of Ukraine. Pakistan suffered daily blackouts and energy saving measures were again introduced to curb the blackouts.

8:23But the situation was quite different then. Pakistan was going through an economic crisis at that time. We didn't have enough dollars to pay for fuel. Now, four years later, we are in a much better place. Pakistan's reserves, dollar reserves have gone up. Now we're around$21 billion total reserves. It's at a four-year high right now. Pakistan may have more dollars in the bank today, but rising oil prices pose a real risk. Investors worry that the stability Pakistan has built over the past few years could quickly unravel if the trend continues. The country is in a slightly better position this time, but that doesn't mean that industries won't feel the pain, that the country's budget won't feel the pain.

9:10And certainly the measures that they have taken suggest that they are positioning themselves for a lengthy period of heightened prices. You know, things do come unstuck. Pakistan, during the European gas crisis after Russia's invasion of Ukraine, is a very good example of that. Trading houses cut off Pakistan in order to serve Europe, where prices were far higher. I think it's almost inevitable that countries with less purchasing power will find themselves a little bit further back in the queue. but remember political allegiances also matter here, and those are complex across the region. Beneath the immediate strain of rising oil prices, Pakistan faces a familiar cycle.

9:50Periods of growth followed by sudden crashes, persistent instability, and repeated bailouts. Since the 1950s, the country has been the recipient of more than 20 bailouts from the International Monetary Fund, making it one of the fund's most frequent borrowers. Pakistan has this economic cycle for what we call a boom and bust cycle. As I mentioned, dollar reserve, that's quite a key indicator in Pakistan's history. What happens is that we run out of dollars and then, you know, there's an economic slowdown. We run back to the IMF for a bailout. On top of that, Pakistan is heavily indebted to a wide range of creditors, including China.

10:31Its interest payments alone amount to 43 percent of the country's export revenues, one of the highest ratios in the world. Rising energy costs mean there will be less capacity to service that debt, potentially pushing the country closer to default. This is compounded by other issues that we're facing right now. There are a lot of fundamental issues in Pakistan of corruption that has never been controlled. There's political instability in Pakistan all the time. One is trying to overthrow the other. There is a lot of regime change that happens. All of this constrains the economy and the country and the growth of the country.

11:11And it's not just the war in Iran adding pressure. Pakistan has opened another front much closer to home. Last month, the government declared what it called an open war with its neighbor, Afghanistan, launching airstrikes across the border. What is behind this latest escalation? When the U.S. and NATO pulled out of Afghanistan a few years ago, the Afghan Taliban government came to power. And since then, we've seen that militancy or terrorist attacks in Pakistan have increased over time. The Afghan Taliban government is giving safe heaven to terrorists who are planning, plotting, and also sometimes entering as suicide bombers and attacking Pakistan.

11:54So Pakistan's defense minister has called an open war against Afghanistan now. And Pakistan has been quite aggressive in the past two weeks. What is the public sentiment regarding this conflict, especially as a country faces a severe energy crisis?

12:33the Afghan Taliban to deal with this issue, but they haven't been. So Pakistan has now taken it into its own hands. And right now, I mean, getting back to the energy situation, what's the current outlook for Pakistan's energy crisis? And is there consensus on how that might be resolved? It all depends on how long the war lasts. Pakistan has used its current relations to get fuel this week. but if it's a short shock that lasts a week or so then pakistan is good pakistan will be able to ride it out but if this conflict is prolonged it goes on for several months then we are looking at a most severe scenario and widespread energy shortages across the country by shortages i mean electricity blackouts for four to six hours there will be fuel rationing as well Anything can happen.

13:29There could be deadly protests. There could be pressure on the government to resign. There could be a lot of unrest in the country. And hopefully we don't get there. Pakistan isn't the only country in Asia affected by this energy crisis. After the break, we'll look at how the riply effects of oil and gas price hikes are being felt across the region.

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17:47Earlier this week, President Donald Trump pressured countries, including China, to help unblock the Strait of Hormuz. Trump even threatened to delay his summit with President Xi Jinping if Beijing doesn't step in. But Bloomberg Commodities and Energy Editor Clara Ferreira Marquez says it's unlikely China will bow to that pressure. Remember, China has a non-intervention policy. It tends to stay well out of these situations. It has escorted vessels before, but not in these contexts. I can see very little upside for China here. As for a delay in the meeting, I'm not sure that China is particularly concerned about that.

18:27So I understand that this sounds quite effective, but in reality, it probably says more about the pressures on the Trump administration than it does about the Chinese. Trump also threatened to expand strikes on Iran's Karg Island, targeting its oil infrastructure. We can do that on five minutes notice. It'll be over. Across Asia-Pacific, rising oil and gas prices are already reshaping economies, straining budgets and forcing governments to rethink how they protect industries and households. Clara says it's the poorer countries with less resilient economies that are being hit hardest and fastest.

19:08The wealthier countries can generally at least buy their way out of it in the short term. They can get energy from Australia. They can get it from the U.S. But it is going to cost more. It has to come further. And it probably won't be available immediately. And then you're competing with plenty of others who are also trying to replace supply, which again puts the more price sensitive countries at a disadvantage. And what's the situation with energy surpluses or reserves? So the reserves picture is a bit complicated. China obviously has extensive reserves under its strategic petroleum reserve and also commercial reserves.

19:44It's something they've been building up for a very long time. It's part of China's wide package of energy security. Places like Singapore would have them. But it's not widespread. Most of these countries are fuel importers. Even somewhere like Indonesia, which does produce its own crude, is still a net importer of crude and is still a net importer of fuels. It's not just oil and gas that are at stake. The closure of the Strait of Hormuz is disrupting a wide range of commodities. We do tend to focus on it as an energy-producing region. So, for example, gas is a feedstock for fertilizer, but there are flows of fertilizer itself coming from the region.

20:20It's aluminum. It's steel for the industry. There's a huge amount that is actually produced here. Take LPG, that's liquefied petroleum gas, as an example. It's used for cooking in many homes, as well as in key industries. India is the world's second largest importer of LPG, and right now it's facing an acute shortage. With those sources no longer arriving, you saw the Indian government channeling resources towards households rather than industry. Over the weekend, Prime Minister Narendra Modi announced that India had secured safe passage for two LPG tankers through the Strait of Hormuz. Since the war began, only a handful of nations, including China and Russia, have managed to get vessels through safely.

21:11Clara, we've seen Russian oil prices climb sharply in recent weeks. What were once discounts have in some cases turned into premiums. At the same time, the Trump administration has temporarily e-sanctions on certain Russian shipments. How is that reshaping the oil market and affecting countries like India that do buy oil from Russia? India isn't traditionally a large consumer of Russian oil. After the war in Ukraine, discounts became extremely attractive and India became the largest buyer of seaborne Russian oil. The Trump administration has sought to change that largely to pressure President Putin.

21:47And that is now changing again. The U.S. has now provided two waivers that would allow countries, including India, the first was just for India. The second was wider, to buy Russian oil already on the water. so that then opens the potential for India to take more. The issue is exactly the one that you've identified which is it's actually pretty expensive now so that initial advantage is no longer as attractive. However, this oil is on the water so it is available. So the prices are rising. Indian refiners will have to pay more because what was a discount is in some cases now turning to a premium and the Chinese refiners, particularly the private sector that have been really reliant on these discounted flows, they're all paying more for them.

22:31Rising energy prices have an immediate effect on people's economic security. And we've seen here in Asia that economic insecurity can lead to political unrest. Where do you think are the stress points here in Asia Pacific? That's difficult to say because I think you have some places where it would be very immediate. So you try and put up fuel prices in an emerging economy in Southeast Asia, and you will almost certainly feel people on the streets very quickly because it's a very large proportion of your spending every month, right, to go into food, which is directly impacted by fuel costs and then fuel costs themselves.

23:07But it plays out in the longer term here. And that is not really just a problem for Asia. I mean, the US has midterms at the end of this year, right? It's going to be a massive issue there too. It's an issue in Brazil, which has elections in October. So the political repercussions here will play out over a long period of time, especially if this is drawn out.

23:32This is The Big Take Asia from Bloomberg News. I'm Wan Ha. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you like the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening. See you next time.

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