War-driven energy and feedstock cost surge in Asia hits peak, but volatility far from over

Two months into the US-Iran war, Asia’s cost landscape is undergoing a critical transition. What began as a violent, supply-driven surge across energy and feedstock markets has now shifted into a volatile phase of corrections and recalibration. While several key benchmarks—from crude oil to LNG, propane, naphtha and coal—have retreated from their peaks, prices remain structurally elevated amid fragile ceasefire conditions, persistent disruptions in the Strait of Hormuz, and ongoing supply chain reconfiguration.

The result is a region still grappling with high input costs including 3-year high electricity prices, uneven recovery, and lingering uncertainty over what comes next.

Crude oil: War premium persists despite pullback

Crude oil has remained the central driver of Asia’s cost inflation, with Brent surging nearly 70% from pre-war levels to a late-March peak before easing modestly. Despite a partial pullback of around 14%, prices remain elevated above $100/bbl, with Brent settling at $108.23/bbl on April 27 and continuing to hover near $110 in intraday trading on April 28.

The market continues to price in significant supply risk from the Gulf, where disruptions linked to the Strait of Hormuz have severely constrained exports. Estimates suggest that more than half of pre-war regional output remains offline due to precautionary shutdowns, shipping bottlenecks, and limited tanker availability. While some recovery is expected, ongoing geopolitical uncertainty and stalled diplomatic efforts are keeping the war premium firmly embedded in prices.

LNG: Structural tightness outweighs short-term correction

Asian LNG Japan/Korea (JKM) futures recorded the sharpest increase among major energy benchmarks, more than doubling from pre-war levels in mid-March before gradually retreating by roughly 26% to around $16.5/MMBtu as of April 28. Despite this correction, the market remains fundamentally tight, with supply disruptions expected to have lasting consequences.

According to the IEA, the conflict could remove over 120 bcm of LNG supply from the global market between 2026 and 2030, with immediate losses already evident due to halted flows through Hormuz. Damage to key infrastructure and delays to expansion projects are likely to prolong tightness, keeping competition for spot cargoes intense across Asia. As a result, LNG continues to exert upward pressure on power and industrial costs despite recent price easing.

Propane: Trade flows reshaped as Asia pivots west, China’s PDH run rates slashed

Propane Far East Index Futures surged by more than 50% in March, driven by a collapse in Middle Eastern exports and a scramble for alternative supply. While prices have seen only a limited correction of around 7% to around $850/ton, the more significant shift has been structural, as trade flows are being rapidly redrawn.

Asia has increasingly turned to the United States and other Western Hemisphere suppliers, with US export infrastructure operating near capacity. This shift has introduced longer shipping routes, higher freight costs, and increased exposure to logistical constraints. At the same time, downstream sectors such as China’s PDH plants have reduced operating rates to even below 60% due to feedstock shortages, highlighting the broader industrial impact of the disruption.

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Naphtha: From record highs to fragile recovery

Naphtha markets experienced one of the most dramatic dislocations, with prices hitting an all-time high of around $1250/ton CFR Japan in late March— more than doubling from pre-war levels.The spike was driven by a near-collapse in Middle Eastern supply, with shipments to Asia falling by as much as 85% at the peak of the disruption. Asia’s heavy dependence on naphtha imports explains the vulnerability of the region.

Since then, prices have corrected sharply, dropping to around $1040/ton within three weeks before rebounding to approximately $1125/ton in line with the latest crude strength. While supply conditions have shown tentative signs of improvement—with countries like South Korea securing up to 90% of pre-war volumes for May—markets remain highly sensitive to any renewed disruption. Meanwhile, the impact has already spread downstream, with reduced cracker operating rates and growing strain on manufacturing supply chains across the region.

Coal: Domestic factors cushion global shock

Coal futures (Newcastle Coal) in Asia have been relatively less volatile compared to other energy benchmarks, rising by around 25% at their peak to above $144/ton and marking their highest levels since 2024. Unlike oil and gas, coal markets have been supported more by domestic factors than direct geopolitical disruptions, although they retreated by around 10% from their peak.

In China, tightening port inventories, strong industrial demand, and logistical constraints such as railway maintenance have underpinned prices. Weak hydropower generation has further increased reliance on coal-fired power, helping sustain elevated price levels even as other energy markets began to correct. The more contained volatility reflects coal’s relatively insulated supply chain, though prices remain firm.

Electricity: Cost transmission intensifies across industries

Electricity prices in southern China have surged as the energy shock ripples through the power sector, with spot prices in Guangdong nearly doubling in April to nearly 680 yuan/MWh and reaching a three-year high. The increase has been driven primarily by higher LNG costs, which have significantly raised marginal generation costs for gas-fired power plants.

The spike has begun to strain power markets, with some brokers facing difficulties meeting contract obligations and industrial users increasingly exposed to higher spot prices. Although many consumers remain partially shielded through long-term contracts, the elevated spot market is setting a higher baseline for future pricing, raising concerns about sustained cost pressure heading into the summer demand peak.