How the Hormuz crisis will alter the landscape for Western businesses in developing Asia

Asian markets are critically dependent on energy from the Gulf, relying on imports of LNG, oil and refined products. Prices have skyrocketed, and supplies have been disrupted.  Many countries in the region are having to ration key inputs such as fertilizer, diesel and jet fuel.   China has stepped into the supply breach with supplies from its strategic reserves to favoured counter parties in the short term, but more importantly, it has seen its exports of green technology skyrocket. This is only logical as the affected economies pivot to limit their fossil fuel dependence.

Power from the People’s Republic

China is the world leader in smart grids, high voltage transmission, fast charging batteries, not to mention solar panels, wind turbines and electric vehicles – often summed up as the ‘electro state’. Beijing is already seizing on the energy market disruption to roll out its solutions and become the energy guarantor of the region, much as the US has been the security guarantor.  It will matter little that countries like Thailand and the Philippines are US treaty allies, as Chinese suppliers come to dominate strategic sectors in the region even more than has been the case to date. 

Of course, not all countries need or will cozy up to China’s offering. Japan and Korea have their own technologies, and India has long had security concerns with PRC tech.  But the rest - a broad swath from Pakistan to the Philippines - will have little choice but to buy into China’s electro ecosystem – there are simply no other cost-effective options.  Of course, this benefits China because it will be a boon to its ‘new productive forces’ (advanced tech) economic strategy, further reinforcing its export dominance and giving Beijing new influence in the region.

Unfortunately, if the BRI model is anything to go by,  many of the contracts will be ‘no bid’ – a red flag for transparency concerns.  What’s more,  by desire or diktat, this infrastructure will most often be executed in partnership with host country governments and business groups, creating an even more ‘uneven’ playing field for Western firms. 

The fear of missing out

An energy shock always disrupts supply and demand. But it also changes procurement priorities, accelerates investment decisions, and forces governments and companies to accept trade-offs they would previously have avoided. The energy shock from the Iran war is accelerating a structural shift in buying, financing, and controlling energy infrastructure across Asia. Chinese manufacturers of batteries, solar panels, electric vehicles, storage systems, and grid equipment are there to meet urgent demand from countries keen to diversify. This way, Chinese companies can embed themselves in the infrastructure, financing and political networks of the region’s energy transition. Short-term purchasing decisions made during this crisis, favoring Chinese suppliers, can then result in the exclusion of Western firms in the long run.

This is where the picture becomes more complicated. The faster capital moves, the harder it becomes to understand who is really involved. In the past decade, we have seen risk in energy and commodities become increasingly cross-jurisdictional: sanctions exposure in one place, opaque beneficial ownership in another, politically exposed intermediaries somewhere else, and supply chains that run through several high-risk markets before reaching the end customer. The energy transition is adding new layers to that complexity.

The careful and strategic way forward

There is still a role for Western firms, particularly where they can offer transparent finance, robust governance and reliable delivery, or when the Chinese alternative is politically not acceptable. 

But in this environment, Western companies, banks and infrastructure investors will need to look beyond the headline supplier or project sponsor. They will need to understand local distributors, joint-venture partners, politically connected facilitators, financing channels and the provenance of equipment and components. This will be especially important in markets where energy, transport, ports and utilities are closely linked to state-owned enterprises, ruling-party interests or business groups connected to the local military and defence sectors.

The winners in this next phase of Asia’s energy transition will not only be those who can provide technology quickly. They will be those who understand the networks through which that technology is financed, approved, distributed, and controlled.