A Mid-East Showdown, A Far-East Impact
Energy standoff in Strait of Hormuz underscores global energy predicament
Recent skirmishes between Iran and Israel have sparked a wave of concern, not just in the Middle East, but far beyond. The ongoing tension revolves around Iran's nuclear program, a contentious issue that has put regional stability on the line.
Israel, along with the US, sees Iran's nuclear advancements as an existential threat and a major challenge to regional stability. These concerns have led to a series of military engagements, including drone, missile, and airstrikes. The latest escalation saw US B-2 bombers targeting Iranian nuclear facilities with bunker-buster munitions.
The standoff marks a departure from the 2015 nuclear agreement, which aimed to curtail Iran's uranium enrichment in exchange for the lifting of international sanctions. However, the withdrawal of the US from the deal in 2018 under the Trump administration sought a more restrictive framework for Iran's nuclear ambitions and regional influence.
Iran's nuclear program has moved forward at a pace, bringing military escalation to the forefront. In response to the US bombing, Iranian lawmakers proposed closing the Strait of Hormuz, a key maritime passage for one-third of global seaborne oil. If approved, a partial or total closure could lead to a surge in global energy prices, creating havoc in fuel markets and affecting the broader cost of living.
The potential fallout of this tussle doesn't stop at the Middle East. Countries in Asia, notably Taiwan, are particularly exposed to these energy price fluctuations. Here's why.
Taiwan, renowned for its high-tech industry, consumes vast amounts of energy. The Strait of Hormuz, albeit geographically distant, is a crucial artery in Taiwan's energy supply chain, providing 61% of its imported crude oil and nearly one-third of its liquefied natural gas. Key oil-producing countries like Saudi Arabia, Kuwait, the UAE, Iraq, and Qatar supply Taiwan with crude oil, while Qatar alone sources much of its liquefied natural gas.
With the shutdown of its last nuclear reactor at the Ma-anshan Nuclear Power Plant on May 17th, Taiwan finds itself even more exposed. Replaced with nuclear energy as a stable and domestically controlled low-emission baseload power source, nuclear energy plays no part in Taiwan's current operating capacity. Renewable energy, currently making up just 12% of Taiwan's energy mix, has yet to make up for the nuclear void.
Consequently, Taiwan's reliance on fossil fuels has increased, making it more susceptible to volatile energy markets and geopolitical risks. With its economic foundation and advanced chip manufacturing hanging in the balance, any disruption in energy flows through the Strait of Hormuz could cause significant financial strain.
Even without direct supply cuts, a surge in global energy prices due to the potential closure of the strait would burden Taiwan's economy. Considering ongoing energy reforms, sharp increases in costs could delay investment in renewable energy, deepen budget strains, and amplify domestic dissatisfaction.
Energy security is about more than just lighting homes or powering factories; it's about fueling economic growth and underpinning national security. In a rapidly evolving global landscape, the energy foundation of Taiwan is worth reexamining. It's high time for a multi-faceted, non-ideological discussion on Taiwan's energy strategy, focusing on diversifying energy sources, securing long-term supply agreements, and modernizing the energy infrastructure. A pragmatic, reality-grounded approach is crucial in navigating unforeseen events and securing Taiwan's economic stability and national security.
Harun Talha Ayanoglu is a research associate at the Taiwan Center for Security Studies.
- The ongoing tension between Iran and Israel, particularly regarding Iran's nuclear program, has potential implications beyond the Middle East, reaching as far as the energy markets of Asia, such as Taiwan.
- Taiwan's high-tech industry consumption of energy makes it extremely reliant on the Strait of Hormuz, providing 61% of its imported crude oil and nearly one-third of its liquefied natural gas, with key oil-producing countries being major suppliers.
- The standoff between Iran and the US, and the possible closure of the Strait of Hormuz, could lead to a surge in global energy prices, causing significant financial strain for Taiwan's economy and delaying investment in renewable energy, deepening budget strains, and amplifying domestic dissatisfaction, thus underlining the importance of a comprehensive discussion on Taiwan’s energy strategy.
