Escalating tensions in West Asia are reshaping energy strategies across Asia, with Japan and South Korea accelerating nuclear expansion plans while leaning on coal to manage immediate supply shocks, according to energy consultancy Wood Mackenzie.
The latest volatility follows an escalation in the United States-Israel strike on Iran since February 28, raising concerns over global energy supplies. The outage in the Strait of Hormuz — a key route for around 20 per cent of global oil trade — is sending shockwaves through energy markets.
Around 19 per cent of global LNG supply has been disrupted, pushing Asian spot prices above $20 per million British thermal units (mmBtu) and forcing buyers to compete for limited cargoes.
Coal-fired power is emerging as a key short-term buffer, Wood Mackenzie said in an analysis released on March 18, 2026. During the current shoulder season, coal plants could offset up to 70 per cent of gas-fired generation in Japan and more than 100 per cent in South Korea compared with last year.
This has helped both countries manage near-term instability in liquefied natural gas (LNG) markets.
Both countries have had relatively limited direct exposure to LNG disruption, about 6 per cent for Japan and 15 per cent for South Korea. Even then, diversified procurement and long-term contracts are shielding consumers in both countries from immediate price spikes.
“Diversified procurement and long-term contracts provide Japan and South Korea with multiple layers of protection, delaying the impact of fuel price volatility on power end users,” said Xiaonan Feng, principal analyst for Asia Pacific power and renewables at Wood Mackenzie.
However, the broader policy impact is likely to be long-lasting, the analyst said.
In Japan, fuel costs take three to six months to feed through to consumers due to pricing mechanisms. In South Korea, tariff caps help limit short-term price spikes, although this adds financial pressure on the state utility, Korea Electric Power Corporation.
The crisis is reinforcing energy security as a central policy priority. Japan is moving further away from its post-Fukushima caution on nuclear power, supported by the restart of reactors adding 4.6 gigawatts (GW) of stable baseload capacity, according to Wood Mackenzie.
South Korea is also expanding its nuclear plans, with key decisions pending on extending the life of ageing reactors. Around 7.8 GW of capacity is due to reach its design limits by 2030, and decisions on extensions will be crucial to the country’s future energy mix, the analysis said.
At the same time, both countries are slowing coal phase-outs and investing in domestic clean energy supply chains, including offshore wind and next-generation solar technologies.
Demand in Northeast Asia could fall by 4-5 million tonnes through the third quarter if disruptions in Hormuz continue, as utilities switch to coal and industrial demand weakens.
Oil markets are also under strain. Asian refiners could cut crude processing by up to 6 million barrels per day in April in a worst-case scenario, reflecting the region’s heavy dependence on West Asian supplies, Wood Mackenzie warned on March 11.
Global oil prices on March 18 fell more than $2 per barrel to pare some of March 17’s sharp gains after the Iraqi government and Kurdish authorities reached a deal to resume oil exports via Turkiye's Ceyhan port, providing modest relief to concerns about supplies from West Asia. However, there is no sign of a de-escalation yet.
This has left oil exports from West Asia largely halted, Brent futures prices have settled above $100 per barrel for the prior four consecutive sessions. After rising more than 3 per cent on March 17, Brent futures retreated $2.26, or 2.19 per cent, to $101.16 a barrel by 0959 IST on March 18. The US West Texas Intermediate crude dropped $2.99, or 3.11 per cent, to $93.22.
India is among the most exposed to the disruption. Without Russian crude, its dependence on West Asian oil exceeds 80 per cent, and even with current supplies remains around 50 per cent. Refiners may cut utilisation by up to 12 per cent, reducing crude processing by roughly 600,000 barrels per day.
The LNG shock is already forcing industrial gas curtailments. India, which sourced nearly 60 per cent of its LNG imports from Qatar and the United Arab Emirates in 2025, may only be able to replace about half of disrupted volumes, triggering supply rationing in energy-intensive sectors.
Across South Asia, the impact is severe. Pakistan, almost entirely reliant on Qatari LNG, faces deep supply cuts, while Bangladesh is resorting to expensive spot purchases and widespread gas rationing.
The disruption is also hitting fuel exports. Asian gasoline shipments are expected to drop by about 750,000 barrels per day in March, while diesel and jet fuel exports are also declining sharply as governments prioritise domestic supply.
China has already curbed exports, and refiners in India, Japan and South Korea are becoming increasingly cautious amid uncertainty.
While current buffers such as coal, stockpiles and pricing mechanisms are cushioning the immediate impact, analysts warn that prolonged disruption into peak summer demand could strain systems further.
A stronger US dollar may add to pressure by raising import costs, while delayed oil-linked LNG pricing could push up energy bills from June onward.
The broader trajectory is clear: energy security concerns are accelerating nuclear adoption, delaying coal phase-outs and driving localisation of supply chains across Asia’s major economies.
“The immediate risks are manageable, but the long-term direction is clear,” Feng concluded. “Energy security considerations will continue to accelerate nuclear expansion, delay coal retirements and drive greater emphasis on domestic energy supply chains in both markets.”