Rising energy price volatility linked to tensions around the Strait of Hormuz is strengthening the economic and security case for accelerating renewable energy deployment across Asia, experts say, as global oil prices surge and LNG supply disruptions ripple through energy markets. 

Panelists at “Securing Asia’s Energy Future Amid the Hormuz Crisis” webinar on Thursday, said the region’s heavy dependence on imported fossil fuels has once again exposed economies to supply disruptions and price spikes, highlighting the need to diversify toward domestic renewable resources.

Ramnath N. Iyer, Sustainable Finance Lead for Asia at the Institute for Energy Economics and Financial Analysis (IEEFA), said past supply shocks have already shown how reliance on imported liquefied natural gas (LNG) can strain national budgets even when consumption falls.

“The actual usage of LNG in Bangladesh and Pakistan dropped as a result of the crisis in 2022 by 13-15%. But they ended up paying double. So the import bill for Bangladesh, for Pakistan, was double of what it was before, despite using less. Even for a country like Japan, they had 3% less LNG available, but they paid 65% more,” Iyer said.

The warning comes as energy markets are already experiencing significant disruption. Shipping bottlenecks and supply risks in the Gulf have pushed Asian LNG prices sharply higher, with analysts noting that geopolitical tensions around the Strait of Hormuz have added a premium to spot gas prices in the region.

Iyer noted that Europe managed to soften the impact of the previous energy crisis partly by accelerating its transition to renewable energy sources.

“When we look at renewables as the alternative, we realized that a lot of these problems could have been avoided if many Asian countries had switched faster to renewables. Europe, to a large extent, did that after 2022, which is why the crisis doesn’t seem to be as bad in Europe,” he said.

Current generation costs are also strengthening the case for renewable energy, Iyer added. “At the current prices of gas, we are looking at an LCOE of gas of about USD 130 per megawatt hour. Now, if you look at the global average for solar and for wind, that’s about USD 40.”

IEEFA’s analysis also found that solar combined with battery storage is becoming economically competitive with gas generation in many Asian markets.

“We’ve also found that even at 20% higher gas prices from last year, not 50% which we have now, in most countries in Asia, the LCOE for solar and storage together is competitive economically versus the LCOE of gas. So the argument that gas is needed for firm power and renewables is variable no longer holds true, especially at current gas prices,” Iyer said.

“So, we think that Asian economies, Asian policymakers, really have every incentive at this point in time to accelerate the move towards renewables, to bring forward their plans, and to make more ambitious plans, to switch to renewables. It’s a matter of economic security.”

Renewable energy systems also face fewer supply chain risks once installed, he added.

“The fossil fuel supply chain is dependent on day in, day out, while for renewables, once you put it, you’re done for 20 years, 25 years, 30 years. There’s no supply chain disruption. The renewable supply chain is significantly less affected than the fossil fuel supply chain.”

Other analysts warned that prolonged volatility in oil and gas markets could widen economic disparities across the region.

Dinita Setyawati, senior energy analyst at Ember, said countries that remain heavily dependent on fuel imports could face higher inflation and economic instability.

“The changes in energy prices might not capture the full extent of inflation, but reducing import dependence could really make the countries stabilize their economic growth,” she said.

“If this oil and gas powered volatility keeps going on for a prolonged period of time, there might be a widening of disparity between the more developed Asia and emerging economies in the region.”

Setyawati added that renewables could deliver significant long-term cost savings.

“Replacing fossils with renewables can save fuel costs. In Thailand’s case, looking at the projections by 2037, expanding solar and battery capacity could further unlock USD 1.8 billion savings from the fuel cost from gas.”

Governments across Asia are already taking emergency steps to cushion the economic impact of higher fuel costs. Some countries have begun implementing price caps and market interventions to protect consumers as the Middle East conflict drives energy prices upward. 

Caroline Baxter, Director of the Converging Risks Lab at the Council on Strategic Risks, said the recent spike in oil prices underscores the vulnerability of fossil fuel-dependent economies.

“The price of oil has skyrocketed past USD100 a barrel since the beginning of Operation Epic Fury, and the countries paying the steepest price are in Indo-Pacific: prices in Vietnam have risen almost 50%, with Laos (33%), Cambodia (19%), and Australia (18%) right behind.”

“With no clear end to the conflict in sight, nor guarantees of when shipping through the Strait of Hormuz will begin, this is precisely the geopolitical crisis that fossil fuel-dependent nations have dreaded.”

She added that energy security discussions must increasingly include renewable energy solutions.

“Renewable energy must have a spot at the table in order to unleash the full potential of national resilience — the ultimate goal of any nation and therefore any energy forum,” Baxter said.

With global fuel markets once again shaken by geopolitical tensions, should Asian economies accelerate renewable deployment to reduce exposure to imported energy risks?

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