ASEAN Moves to Build Emergency Oil Reserves Amid Iran Supply Crisis

The Association of Southeast Asian Nations (ASEAN) has agreed to establish a joint crude oil stockpiling scheme to address the supply disruption caused by the war in Iran, which has significantly impacted countries in the region, according to Reuters. The scheme will feature storage sites in Indonesia and Thailand, from which member countries can draw oil during periods of tight supply.

Withdrawals will be managed through a ticket system, where countries pay an advance fee to reserve the right to purchase a certain volume of oil or fuel from the storage sites operated by another member nation's energy company, as explained by Reuters. The Philippines, which has requested permission to acquire gasoline and diesel from storage sites in Indonesia and Thailand during emergencies, is expected to be the first country to utilize this system.

The idea for the joint ASEAN oil stockpiling came from Indonesia and has garnered strong support from Japan, which is heavily reliant on energy commodity imports and has been particularly affected by the supply crunch resulting from the U.S. and Israeli war with Iran. As a whole, Asia has been the most severely impacted by the consequences of the war that began on February 28, with the Middle East being the primary hydrocarbon supplier to the continent.

Due to geographical factors, the Middle East provides the majority of hydrocarbons to Asia. With that supplier largely unavailable for an extended period, Asian countries are actively seeking alternatives at higher prices, leading to inflation and increased government spending to shield the economy from the worst effects of the energy crisis.

This came as the World Bank warned last month that Asia was running out of money due to the energy crisis. Subsidies have been the most common policy response among emerging and developing economies to combat the crisis, according to the World Bank. While countries with substantial subsidies have experienced smaller increases in retail gasoline prices compared to non-subsidizers, the relationship between subsidies and headline inflation has weakened considerably.