Asia Raises Biofuel Mandates to Reduce Dependence on Middle East Crude
Indonesia and Thailand are expanding blending requirements as the Middle East supply crisis forces Asian governments to seek domestically produced alternatives to imported crude.
Indonesia has moved to raise its mandatory biodiesel blending rate from 40 per cent to 50 per cent, while Thailand has committed to switching fully to ethanol-blended gasoline made from domestically grown sugarcane, according to reporting on Friday (2026-07-04). The decisions mark the most concrete biofuel mandates to emerge from the regional scramble to reduce exposure to Middle Eastern crude, where supply disruptions since March have reshaped Asian energy flows.6
The impetus is the scale of what was lost. The U.S. Energy Information Administration's latest Short-Term Energy Outlook assessed that Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain collectively shut in 10.5 million barrels per day of production as the conflict with Iran intensified. Qatar halted LNG production on March 2 (2026-03-02) and for several weeks thereafter, while Iranian retaliation against U.S.-Israeli strikes disrupted roughly 17 per cent of Qatar's LNG export capacity. ICE Brent crude front-month settled at $72.12 on Saturday (2026-07-05), reflecting a still-constrained supply picture.5,4
South Korea illustrates the pressure. The country relies on the Middle East for roughly 70 per cent of its crude supply, and President Lee Jae Myung declared an economic emergency during the week of May 18 (2026-05-18), with Seoul passing an additional 17 billion dollars in emergency budget to manage the fallout. India's aviation sector took the sharpest hit: authorities acknowledged that aviation fuel prices would have risen "more than 100 per cent" without government intervention, and capped the increase for domestic flights at 25 per cent.2
The case for biofuels, as Kpler analyst Beata Wojtkowska put it, comes down to two goals at once: limiting crude import dependency while boosting farm incomes from locally sourced feedstocks. Thailand's sugarcane ethanol and Indonesia's palm oil biodiesel both fit that frame, drawing on crops with established domestic supply chains. Brazil has also expanded biofuel use, adding to the global momentum behind blending mandates.6
But coal has absorbed much of the immediate displacement from LNG shortages. BIMCO data show coal shipments to South Korea, Japan and the European Union surged 27 per cent year-on-year during April (2026-04), as buyers scrambled for fuel alternatives to disrupted Middle Eastern supply.3 In Japan, coal-fired power generation climbed 11.1 per cent in April (2026-04-30), while gas-fired output fell 12.9 per cent to 16,447 gigawatt-hours, according to the Japanese Electricity Market Data Hub.4 South Korean coal-fired generation rose 39.7 per cent year-on-year that same month — the sharpest annual increase since August 2019 — to 10,733 gigawatt-hours.4
Senior gas analyst Fei Xu at ICIS estimated that Japan's increased coal consumption displaced roughly four LNG cargoes in April alone, approximately half the annual reduction in imports the government had targeted through efficiency measures.4 Vietnam's position was more acute: a regional heatwave pushed coal-fired electricity generation up 12.3 per cent to a record 17,864 gigawatt-hours in April (2026-04-30), according to government figures.4
JKM Asian LNG spot prices remain at $16.07 per million British thermal units as of Saturday (2026-07-05), and market signals lean bullish — a contrarian read against the broader bearish consensus — on the view that any easing of Hormuz constraints would trigger a rapid reversion from coal back to gas procurement. DBX Commodities forecast Asian coal imports rising 9.4 per cent year-on-year to 31 million metric tons, most of that volume needed regardless of how fast biofuel mandates scale.4,3
Europe is moving more slowly. While Asian governments have leaned into domestically produced blending mandates as an energy security lever, European policymakers have been more cautious about expanding biofuel capacity, citing sustainability criteria and land-use concerns.6 The divergence is pointed given that BIMCO data showed EU coal imports rising alongside those of Japan and South Korea during the same period.3
Dinita Setyawati, senior energy analyst at Ember, warned that the pivot to coal would "impose substantial environmental and public health costs," while other analysts argue the crisis may ultimately accelerate Asian renewable investment by exposing the concentrated risks of import dependency.1
For commodity traders, the sequencing matters more than the mandates themselves. Higher biodiesel blending reduces diesel import demand on the margin, putting modest downward pressure on middle distillate markets over time. But at 10.5 million barrels per day of disrupted supply, blending mandates address only a fraction of the displaced volume. Whether LNG corridor restoration happens before or after biofuel policy begins to structurally reduce crude demand will determine how durable these new trade patterns prove — and the JKM-to-coal spread is the leading indicator either way.4,5