Clean Energy

The Hormuz crisis has created a defining tension at the heart of Asia’s energy future. Energy security concerns and recent price shocks are supercharging the economic and strategic case for renewables and EVs, with adoption rates soaring across the region. But the scramble to secure and subsidize short-term fossil fuel supplies risks crowding out the very clean energy investment the crisis would otherwise accelerate. Across the region, the conflict has triggered a fresh wave of coal and fossil fuel subsidies — especially in Japan, South Korea, and Southeast Asia — that narrow fiscal space and distort market signals for clean energy investment, especially if emergency response measures become long-term policies. Nowhere will this tension play out more consequentially than Asia, home to both the world’s leading clean energy manufacturers and some of its most exposed emerging markets. 

China’s lead in renewables and EV deployment and manufacturing positions it for outsized gains. The IEA projects that EV sales across Asia-Pacific countries outside China could rise more than 50 percent in 2026, and Chinese companies are overwhelmingly positioned to supply that demand. Following the onset of the U.S.-Iran conflict, Chinese EV and hybrid exports surged 140 percent year-on-year, and Chinese EV makers rapidly gained share across Europe, Southeast Asia, and India as consumers sought relief from higher fuel costs. Similar trends are playing out for solar panels, inverters, battery energy storage systems (BESS), and other clean energy technologies, where Chinese exports have soared — in some cases to record highs — since March.

Elevated oil import costs are adding an estimated USD 3.36 billion per month to ASEAN’s import bill, creating powerful incentives for EV adoption. In the power sector, heightened LNG prices have made gas-fired power less competitive compared to clean-energy alternatives. These shifts create a strong demand pull for local solar, wind, and battery manufacturing that could benefit the region’s manufacturers at a moment when governments are working to build domestic industries around the energy transition. Vietnam leads the region in solar production and ranks as the world’s fourth-largest solar panel exporter, with production capacity surpassing 19.5 GW in early 2026. Thailand also has a significant solar industry and, as home to the region’s first lithium-ion battery gigafactory, is positioning as a regional EV manufacturing hub.

The risk is that Southeast Asia’s domestic producers are not yet positioned to capture rapidly scaling demand in the wake of the Hormuz closure. Chinese suppliers are dominant across much of the regional supply chain; market acceleration may entrench China’s lead instead of generating domestic industrial value for the region. Meanwhile, emergency coal and fuel subsidies are consuming the fiscal space governments need to invest in grid modernization, infrastructure development, and local manufacturing capacity to be able to compete. 

For Japan, the danger is that an accelerated energy transition is now arriving faster than key industries are prepared for, further widening the clean energy manufacturing gap with China. Japan’s response to the Hormuz crisis has prioritized coal and nuclear instead of renewables to ensure stable supply. EV demand in Japan has surged nearly threefold since March, but for now this may mainly benefit Chinese brands. For Japanese automakers in particular, the Hormuz crisis has accelerated an EV transition they were slow to prepare for.

South Korea is relatively better positioned and may even find that the Hormuz-driven energy shock generates political momentum for Seoul’s ambitious clean energy agenda. After years of relative underinvestment in renewables – Korean financial institutions invested more in coal than in renewables from 2016 to 2021, running counter to a global trend that favored renewables by a ratio of three-to-one — the Lee administration is now working to close the gap. The timing of Hormuz disruptions may be fortuitous: Seoul recently released a detailed and aggressive plan to nearly triple renewable capacity to 100 GW by 2030, a target it calculates could replace half of imported fossil fuels and cut the import bill by USD 13 billion. Korea’s auto manufacturers are also comparatively well placed to capitalize on a crisis-driven surge in EV demand given recent investments, including USD 74.6 billion by Hyundai, and a competitive global EV product portfolio. The Lee government may turn the crisis into an opportunity, if it can execute in a timely manner.