Asian nations race for Russian crude oil as energy crisis deepens

As the US-Israel-Iran conflict enters its fifth week with no de-escalation in sight, the prolonged closure of the Strait of Hormuz has further sparked a desperate scramble for energy security. With traditional Middle Eastern supply lines severed, Asian countries are hit the hardest leaving them with no option but to increase their intake of Russian crude to mitigate a deepening regional energy crisis.

The closure of the Strait of Hormuz has disrupted nearly a fifth of global oil supply and over the weekend, Iran-backed Houthi rebels entered the conflict, further threatening shipping.

Also read: Iran FM says US first 'bullied' India over Russian oil, now 'begs' to buy it

To shore up global crude oil supplies, the US has temporarily eased sanctions on Russian oil shipments already at sea — first for India, then for the rest of the world.

Russia’s oil exports

Demand is rising in Asia, boosting Russia’s revenues. However, experts say Moscow has limited scope to increase crude oil exports further and is already shipping close to peak levels.

In addition, Russia's 4-year-old full-scale invasion of Ukraine and recent drone attacks on its energy facilities by Kyiv are hurting its export capabilities.

Also read: Strait of Hormuz crisis: Will India turn back to Russia for oil?

For desperate countries in Asia, the opportunity is short-lived and shrinking, said Muyu Xu, a senior crude oil analyst at the global trade data firm Kpler. "The real problem is how much cargo is still available in this market,” she said.

A flurry of interest

Before the war, China, India and Turkey were the main importers of Russian oil, flouting Western sanctions for a healthy discount. The US and European Union sanctions were meant to hinder Russia after it invaded Ukraine economically.

But the US sanction waiver sent energy-hungry Southeast Asia into a flurry. This month, the Philippines, Indonesia, Thailand and Vietnam signalled new interest in Russian oil.

Manila, a long-time US ally, imported Russian crude for the first time in five years — days after it declared an energy emergency.

Others may follow, but will compete with China and India for roughly 126 million barrels still at sea, according to Kpler.

India alone typically needs 5.5 million to 6 million barrels of oil per day.

Also read: Modi wants ‘Team India’ to be energy independent, but how are the states placed?

Analysts say Russia is unlikely to boost exports sharply. In March, flows were about 3.8 million barrels a day, above February's 3.2 million but still below the mid-2023 peak of 3.9 million.

Xu said the crisis was a reminder of how quickly geopolitics can shift — sometimes driven by just a few decision-makers — making it hard for countries to plan ahead. She said, “right now, really the priority is to ensure your supply and all the other considerations are secondary."

Southeast Asian countries competing for the dwindling amount of Russian crude oil at sea are likely hoping the US extends its sanction waiver beyond April, Xu added.

The options are limited for these nations, and safer bets — like crude oil from the US, South America or West Africa — are too far for Asia, meaning shipments won't arrive for months. That leaves poorer nations scrambling.

Energy emergency

Airlines in the Philippines are weighing fuel rationing. Cash handouts are being rushed to those hit hardest, like transportation workers. On most days, lines at gas stations stretch for blocks.

The nation of 117 million is an early warning for Southeast Asia.

Also read: How Asian economies are coping with energy crisis amid Iran war

Before the war, the Philippines relied on the Middle East for nearly 97 per cent of its total seaborne oil imports, according to Kpler data. The energy emergencydeclaration is a “new frontier” in its scale and magnitude, said Kairos Dela Cruz of the Institute for Climate and Sustainable Cities. “It will definitely drive people down even further below the poverty line," he said.

To ease energy shortfalls, the Philippines imported crude oil, a first since 2021. Other Southeast Asian nations are weighing similar options.

New partnerships

Vietnamese Prime Minister Pham Minh Chinh's March 23 visit to Russia included agreements on oil and gas cooperation, alongside nuclear energy, as rising diesel prices begin to squeeze Vietnam's manufacturing sector.

In Indonesia, officials said “all countries are possible” partners as they shore up reserves. This includes Russia and the tiny oil and gas sultanate of Brunei, said Indonesian Energy Minister Bahlil Lahadalia.

“When you don't have any other options, all options are on the table,” said Putra Adhiguna of the Jakarta-based Energy Shift Institute.

Also read: Three reasons why India's Russian crude import is set to rise in 2026

While weighing similar moves, Thailand is not as desperate as the Philippines, said Jitsai Santaputra of the energy consultancy The Lantau Group in Bangkok. She added that Thailand will likely wait and see so long as the impact is limited.

But it's growing.

Fuel prices in Thailand jumped on March 26 after caps and subsidies were lifted, with most fuels rising about 20 US cents per litre, with diesel up roughly 18 per cent — a hit to industry and transportation that risks pushing up the price of other goods.

China and India’s advantage

Defying Western sanctions, China and India were major Russian crude oil customers before the US and Israel attacked Iran on February 28.

An additional advantage for India was having US sanctions on Russian crude oil removed about a week before other countries.

“They took that chance and snapped up quite many cargoes,” Xu said. By the time US President Donald Trump allowed everybody else to buy, she said it was “already a bit too late because most of the cargo had already been ordered” by China and India.

Also read: Russian oil tanker rerouted from China reaches India; more on the way: Reports

Even with the head start, Kpler data shows India's crude oil imports from Russia probably aren't enough to offset the lack of supplies from the Middle East.

Its oil imports from Russia jumped to roughly 1.9 million barrels a day in March, from about 1 million barrels before the Iran war. Before that conflict, India imported around 2.6 million barrels per day of crude oil from the Middle East.

That may not be enough, with the approach of peak summer energy demand — driven by travel, agriculture and freight needs — especially as emergency oil stockpiles run down, said Duttatreya Das of the think tank Ember. He added that short-term buys cover only a few days of supply, leaving any gap hard to fill without extra shipments from the US or Canada.

“I don't know how the shortfall will be met,” he said.

China’s oil buffer

Despite being the fifth-largest crude producer and pushing clean energy, China still has strong oil demand from its 1.4 billion people. But it has also built a vast oil stockpile.

It has approximately 1.2 billion barrels of onshore crude inventories, Kpler estimates. That is nearly four months of its overall seaborne crude imports, which cushion short-term impacts from the war.

China sourced about 13 per cent of its seaborne crude from Iran, according to Kpler, and roughly 20 per cent from Russia, said financial data group LSEG.

With ample reserves and deep pockets, analysts say some Russian shipments bound for China could be diverted to more desperate countries.

Also read: US grants India-like waiver to other countries to buy Russian oil

“Russia emerges as a major winner from the entire conflict,” said Sam Reynolds of the US-based Institute for Energy Economics and Financial Analysis. Given the energy crisis, speed of delivery and temporarily lower prices, he said Asia has "a much larger incentive to import Russian oil.” “We can argue whether there's a moral dilemma there, but I think it's a reflection of the fact that countries are going to do whatever they need to do to protect their energy security,” he said.