Special Ep. - What Hormuz means for Asia’s energy security

In this special edition of the Hinrich Foundation’s podcast on global trade, the Association of Foreign Press Correspondents-USA sits down with William George, Director of Research at ImportGenius, to unpack how the Strait of Hormuz blockade has exposed Asia’s dependence on maritime chokepoints, Gulf energy supplies, and petrochemical inputs, with uneven consequences for China, Japan, and Vietnam. 

The Strait of Hormuz blockade has exposed how a single maritime chokepoint can unsettle energy security, petrochemical supply chains, and manufacturing resilience across Asia. The disruption has not affected countries evenly. China entered the crisis with large crude stockpiles, some access to crude outside seaborne routes, and a coal-to-chemicals industry that has helped cushion the loss of Gulf-linked petrochemical inputs. Japan has avoided sudden shortages so far, but only by drawing down strategic reserves, turning to more expensive stopgap crude supplies, and absorbing rising prices for petrochemicals, plastics, aluminum, and construction materials. 

Vietnam faces a different challenge. Its dependence on Kuwaiti crude and Gulf-linked petrochemical feedstocks leaves it exposed not only through energy imports but also through export sectors such as plastics, electronics, apparel, and machinery. Together, the three cases show how the Hormuz disruption is testing national buffers, supply chain flexibility, and the trade-offs countries face as they seek greater energy and industrial resilience. 

Tune in to this podcast as William George, Director of Research at ImportGenius, joins the Association of Foreign Press Correspondents-USA to examine how the Hormuz blockade is reshaping Asia’s energy security, petrochemical supply chains, and economic resilience across China, Japan, and Vietnam. The podcast draws on George’s recent white paper, co-authored with Lynn Hughes and published with support from the Hinrich Foundation, “How the Hormuz blockade hits Asia: Evaluating the chokepoint effect on China, Japan, and Vietnam.” 

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Here is an excerpt from their conversation:  

Roseanne Gerin: China's coal-to-chemicals industry is unique globally. How much does this capacity blunt the impact of losing Gulf-sourced naphtha, which is a key feedstock for plastics and petrochemicals, and gas-derived feedstocks? 

William George: So, this was one of the more fascinating things to look at while we were working on the paper. China's coal-to-chemicals industry is currently unique, but it isn't unique historically. The technology was first proven in Germany during World War II, where they had significant domestic coal reserves but an increasingly tenuous ability to supply crude. And that, I think, helps really illustrate the point that this is not about sole reliance, but it's about strategic diversification.  

Coal-to-chemicals is dirty, and it's also quite expensive. It doesn't become economically viable without alternate feedstocks, crude oil being pretty pricey. So, oil needs to be above US$70 per barrel at minimum to make this economically viable, and the industry in China has also benefited from substantial government subsidies. Now, in comparison to neighbors, India and Indonesia, who are also oil importers with significant coal reserves, have failed to justify the industry economically.  

Right now, though, the combination of high oil prices and really limited access to naphtha, plastics, and key petrochemicals like propylene and ethylene, this means that the bet on coal-to-chemicals as an initially pricey means of strategic diversification is paying off. It's difficult to say precisely what volumes are being produced domestically, but there are some figures. So, of China's 30 million yearly tons of PVC [polyvinyl chloride] production, roughly 10 million tons are ethylene-based and imported from the Hormuz, and 20 million tons are carbide-based, produced from coal-derived acetylene. So, that gives you a sense immediately of some of the volumes that can be produced here. And further reporting indicates that China's coal-to-chemicals industry is already consuming more coal annually than Europe's total consumption — just that one industry alone.  

Now, not all of this is being used to make plastics. Due to petrochemical magic, it's possible to output aviation fuel and also, in particular, natural gas. Natural gas is being heavily targeted by the Chinese industry as a key coal-to-chemicals output since it's cheaper than non-pipeline natural gas imports, if you discount environmental costs, and it's also immune to maritime disruption. The economic viability likely vanishes rapidly when you consider liquefying that gas and transferring it via maritime routes. So, this is purely for domestic stability.  

As far as the overall strategy and the impact on blunting the lack of Gulf-sourced naphtha, really, the proof here is in the pudding. We can look at declarations of force majeure by Chinese petrochemical and plastics companies, and they're very limited. Stories like what we've seen coming out of Japan tied to petrochemical shortages don't seem to be emerging from China, and Chinese prices for key petrochemicals like ethylene-based PVC have come down substantially from their late-March peaks — over US$300 a ton down in the case of ethylene-based PVC. And this is being driven by the availability of this carbide coal route-based PVC, and I think this is probably recurring throughout the market. These prices are well above pre-Hormuz closure levels, but you can see this industry is bringing parity between the ethylene-derived PVC and the carbide-derived PVC, which is having a stabilizing effect on the market. 

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