IEEFA Asia Newsletter

The sustained closure of the Strait of Hormuz and resulting disruption to energy supplies from the Middle East continue to raise energy security concerns and require urgent policy responses. At the same time, questions about capital mobilization and investment strategies remain critical to accelerating Asia's energy transition.

This month, our research examines how governments and investors are responding to immediate supply volatility and evaluates whether these decisions align with long-term energy security and economic resilience. Our new report on Indonesia also assesses the role of sovereign wealth funds in financing and expanding renewable energy deployment.

Key findings include: 

• Indonesia’s sovereign wealth fund (SWF), Danantara, ranks as the eighth-largest fund globally, with USD900 billion in assets under management. However, its dividend model is structurally constrained: state-owned enterprise contributions have consistently fallen short of the government’s ambitious annual target of IDR800 trillion. International SWF experience demonstrates that embedding sustainability in portfolio strategy ensures resilience, long-term value creation, and alignment with global decarbonization trends, while collaboration with regional actors can mobilize the scale of investment required to accelerate Indonesia’s energy transition goals. 

• Japan's policy response to the Middle East energy shock focuses on expanding inflexible baseload generation at the expense of domestic renewable energy that could deliver equivalent energy security benefits without geopolitical exposure. Prioritizing coal and nuclear increases power system rigidity and suppresses renewable integration. Kyushu, Kansai, and Tokyo all show declining renewable output as nuclear capacity comes online. Curtailment dissipates clean energy in the present and weakens future investment in renewable projects by reducing revenue and undermining bankability.   

• For many Asian economies, the Iran conflict has already done lasting damage to the reputation of liquefied natural gas (LNG) as an affordable, secure resource for long-term energy sector development. Countries have sought to ensure short-term energy security by relying on existing energy infrastructure, often coal and nuclear facilities. Renewables may offer the most significant opportunity for expanding new infrastructure. Despite short-term profits for LNG exporters, the global gas industry is also increasingly concerned that price volatility and supply unreliability are hindering demand growth. 

We invite you to view the analyses in full for more detailed insights. 

Warm regards,

Paige Nguyen