Full Title: Asia’s Oil Supply: Risks and Pragmatic Remedies
Author(s): John Mitchell
Publisher(s): Chatham House
Publication Date: 5/2014

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Asia is more at risk from disruption of Middle East oil supplies than is either Europe or the United States, yet as a whole it is less prepared to deal with such an upheaval. (Asia here includes Northeast, East, Southeast and South Asia and Australasia, and is also often referred to in this paper as the Asia-Pacific region.) This paper analyses the risks that major Asian importers would face if oil supplies through the Strait of Hormuz were disrupted on a large scale – for example, if 10 million barrels a day (mbd) were interrupted for 90 days. It does not discuss the many possible causes of such a disruption, nor does it speculate on political or other responses in the Gulf or explore what might be the various medium-term developments in price, demand and supply. But it does discuss the capacity of Asian countries to maintain oil supplies for longer periods of disruption by drawing down stocks or using financial reserves to outbid competing importers for the limited supplies available. Every Asian government would inevitably respond to a major disruption of oil supplies. Uncertainty about governments’ interventions would add to the risk premium generated by uncertainty about physical supplies. This paper identifies priorities for policies to mitigate these uncertainties. The supply risk for liquefied natural gas (LNG) is different from the oil supply risk for Asia and is touched on only briefly in this paper.