Taiwan Shock Index: Impact on Energy

The following impact report is part of Global Guardian's 2024 Taiwan Shock Index.

Sector Snapshot: Energy

Sectors Impacted Upstream: Hydrocarbons, coal

Sectors Impacted Downstream: Electrical, metallurgy, chemicals, consumer goods, clothing and textiles, construction, food processing, automotive, manufacturing

A Taiwan Strait Crisis would prompt a massive energy shock in the short term and would irrevocably alter the energy market. Seabourne imports from the Middle East to China, Japan, and South Korea — three of the five top global energy importers — constitute over half of the total global oil trade. The sea lanes through which the energy is transported would be contested in the event of a conflict.

Short-Term Impact: Moderately Adverse

• A Taiwan Strait Crisis would prompt an unprecedented global energy shock.
  • Major international crises trigger energy price shocks as the geopolitical instability and uncertainty of the situation are factored into the market. 
• Seabourne energy delivery to East Asia, and China specifically would be disrupted.
  • China, Japan, and South Korea are three of the world’s top five oil importers, constituting around half of the global oil trade. These nations are also major importers of LNG and coal.
  • Delivery of Middle Eastern oil and gas in the midst of a conflict at sea would be complicated, even if price shocks and sanctions are left out of the equation. If China engages in a blockade of Taiwan, shipping oil to China, Taiwan, Japan, South Korea, and even the Philippines through the affected area may prove uninsurable to the point of non-profitability.

Medium to Long-Term Impact: Nuetral

• A military conflict in the Taiwan Strait could irrevocably alter global energy markets.
  • Western sanctions and the United States’ naval control over the Malacca Strait could disrupt China's oil imports. China will likely need to rely on Russia to secure its energy supply.
  • With China replacing Europe’s demand for Russian oil and gas and Russia replacing the Middle East’s supply of oil and gas for China, China and Russia could form a de-facto regional energy market with different market dynamics and little external oversight.
  • The existence of a parallel oil market with different prices would create an extremely lucrative space for smuggling and arbitrage.
• Depending on how long a conflict lasts, insurance costs for transporting oil to East Asia from the Middle East could rise precipitously. Taking a more circuitous route that avoids the Strait would also increase transportation costs.
• Should the Taiwan Strait remain uninsurable, North American (and Australian) energy exports to Japan and South Korea could become more attractive.

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