By Prashanth Parameswaran
While the global coronavirus pandemic continues to have significant macro-level political and economic impacts on the Asia-Pacific and the world more generally, it is also likely to affect key industries in profound ways. Among the most notable sectors to watch is the energy realm, where COVID-19 could reshape interactions between various actors across several levels in the region with ripple effects for geopolitics more generally.
Over the past few years, Asia’s energy future has been driven by a series of broader, long-term trends. These include the rise of major Asian economies that have powered energy demand, the diffusion of energy technologies, and the growing awareness by governments of the need to manage carbon emissions even as they pursue economic growth. Along the way, we have also seen a series of notable shifts that have affected these dynamics, including the recent shale boom in the United States and fluctuations in oil prices.
Viewed from this perspective, COVID-19 is just one among a series of developments that will shape Asia’s energy landscape. It is worth noting that COVID-19 is also interacting with several other trends and developments occurring simultaneously or concurrently, including the collapse in oil prices, rising U.S.-China tensions, growing stress on regional and international institutions, perceptions of democratic rollback, friction between some major energy producers, and a global financial recession, which the International Monetary Fund (IMF) predicts will be the worst since the Great Depression.
The focus thus far has been on the direct, shorter-term impacts of COVID-19 on the energy sector, be it visible manifestations of the slump in global energy consumption that has impacted the region or the effects on particular forms of energy such as hydropower in key Asian markets. While this is understandable, the more consequential question is how COVID-19 will affect some of the longer-term aspects of Asia’s energy future. That in turn requires us to look deeper at several levels across the region to get a sense for what the main contours of the fallout might be.
The first place to look at is the subnational level and how COVID-19 may reshape relationships between the state, the market, and the individual. On the one hand, the coronavirus and the management of the pandemic can put a further strain on some pressure points that exist within countries’ social compacts. This is an especially prevalent concern in densely populated or extremely rural parts of developing countries in South and Southeast Asia where responses to COVID-19 such as social distancing and teleworking can be difficult to practice. Asia’s overall prosperity can at times blind observers to the inequalities and inadequacies that remain within countries, with a case in point being the lack of electricity that affects more than 300 million people across Asia per the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
On the other hand, the coronavirus pandemic could also supercharge ongoing recalibrations in these relationships as well. For instance, while the future still remains unclear, one area to watch is how national oil companies (NOCs) will be affected by this context, including the extent to which some of these firms in China and Southeast Asian countries such as Thailand and Malaysia could take advantage of global opportunities that are within their reach in this environment relative to their competitors.
Moving to the national level, a key question is COVID-19’s impact on the energy mixes in Asian economies. Especially notable to watch in this regard will be dynamics in energy-intensive, emerging market economies like India and China where decisions today – whether it be postponing key projects or instances of energy switching – can shape trajectories for years to come. Those decisions will be shaped by governments who are struggling to balance addressing the immediate fallout from the coronavirus while also thinking of the longer-term future of their countries.
But an additional dynamic is the effects of the coronavirus on energy planning and wider governance in energy-dependent countries. While pulling out all the stops, nations such as Mongolia and Brunei have already had to adjust their political and economic outlooks to partly account for COVID-19-related dynamics. These countries could face future challenges ahead that could affect not only their domestic political environments but also their bandwidths for engaging in the world.
The regional level will also be important to watch to assess the implications for Asia’s energy landscape amid COVID-19. Part of the focus will be on patterns of collaboration – whether occurring in a bilateral, minilateral, or multilateral fashion – be it energy cooperation through ASEAN-led mechanisms, the trajectory of China’s Belt and Road Initiative in the region, or even occasional engagements involving other configurations such as the Quad (grouping Australia, United States, India, and Japan) or Quad-Plus.
But it will be important to pay attention to COVID-19’s effect on competitive dynamics as well. For instance, the coronavirus and its fallout could increase the salience of regional flashpoints such as in the East and South China Sea, where we have already seen some saber-rattling tied to energy exploration involving China, Japan, Malaysia, and Vietnam in particular. COVID-19 could also indirectly influence regional competitive dynamics, as evidenced by the effects it is already having on the defense budgets, procurements, alignments, engagements, and priorities of key Asian countries for 2020 and beyond.
Lastly, COVID-19 is likely to reinforce the importance of the global domain as well, which also impacts the future of Asia’s energy landscape. Of course, part of the focus will be on broad geopolitical trends, including the state of the global economy, the price of oil, and the state of the Middle East, as these variables often generate ripple effects far beyond the energy domain. Though Asian energy importers may temporarily benefit from some COVID-19 dynamics in the short term, some of them are still heavily reliant on the Middle East source-wise and that dependence will not be easy to fundamentally eliminate quickly.
But more broadly as well, pay attention to how these dynamics shape the international outlook on longer term issues. Top of mind is climate change, which continues to loom large for Asia’s future as well. While the coronavirus would ideally serve as a wakeup call for countries to accelerate climate policy efforts before a climate-induced crisis created a global shock of even greater magnitude, in the short-term, the fallout from COVID-19 could also slow some of the momentum toward a cleaner energy future.
To be sure, with the effects of the global coronavirus pandemic still playing out in the Asia-Pacific and so many unknowns still at play, it is difficult to point to a specific time when the exact impacts of COVID-19 on energy dynamics will become entirely clear. And given the fact that the pandemic is interacting with so many different dynamics and is also having consequences across various domains, it may take a while for the dust to settle and some of its effects may not be seen until reflection further down the line. Nonetheless, some of the dynamics we have seen thus far can at least provide us with some sense of where to look and what to look for amid the latest crisis to grip the region and the world.
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