Taiwan’s LNG security amid the Iran war
Taiwan enjoys short-term LNG resiliency, but an oil crisis looms
East Asia’s democracies are of critical importance to U.S. strategic interests but have major energy security vulnerabilities. Taiwan, Japan, and South Korea all import their hydrocarbons – oil, liquefied natural gas (LNG), and coal – almost exclusively from maritime sources. Accordingly, the East Asian democracies’ energy security is under pressure as a result of the U.S. – Iran war and faces severe risks in a PRC-involved contingency. Taiwan’s reliance on energy imports, especially LNG, is a potential Achilles’ Heel in a contingency. Fortunately, Taiwan is in a good position to import LNG by outbidding alternative buyers and switching to alternative fuel sources. Taiwan’s power market does not yet face a crisis.
Still, U.S. President Donald Trump’s recent decision to blockade Iran will undeniably hold major implications for global oil markets and the world economy. Oil prices will very likely spike, lifting headline inflation and interest rates, all else equal, and potentially imperiling the artificial intelligence buildout. Taipei and other democracies should prepare for a long and difficult oil-centric energy crisis.
Taiwan is well-positioned to outbid everyone else for energy
Taiwan’s GDP is growing at a blistering pace, due to its booming semiconductor exports, and is well-situated to outbid other economies for energy imports. In an analysis for Apricitas Economics, Joseph Politano found that Taiwan’s GDP has grown more than 12 percent over the last year and reached an eye-popping 23.6 percent annualized rate in the last quarter of 2025. That growth rate is extraordinary – and is still not widely appreciated. For instance, the IMF World Economic Outlook’s October estimate projected that Taiwan’s GDP would grow under 4 percent in 2025. That is surely an underestimation.
Sources: IMF World Economic Outlook, Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS), Author’s calculations
Taiwan is also in an extraordinarily positive fiscal position. Its central government debt-to-GDP ratio stood at 23 percent in 2025, according to IMF figures – and the ratio is almost certainly an overestimation, due to Taiwan’s GDP coming in much larger than projected.
Sources: IMF World Economic Outlook, Author’s calculations
In fact, Taiwan’s fiscal position may be too good. Its debt-to-GDP ratio should be much higher, given its profound defense and energy security challenges. Taiwan’s Public Debt Act caps its central government debt-to-GDP ratio at 40.6 percent. While the law’s concern over debt levels may have been justified in an earlier era, it is now vastly unsuitable for Taiwan, given the threat it faces from Communist Party-dominated mainland China. Still, Taiwan’s (alarmingly) low debt levels leave it well-positioned to tap credit markets if an energy crisis raises its import bill.
In addition, Taiwan’s per capita income is higher than seen in Japan, Korea, or the PRC, giving Taipei ample space to pay higher prices than other economies. Most demand destruction will continue to take place in developing countries, not the relatively wealthy economies of East Asia, but if the crisis persists Taiwan is still in a good position.
Sources: IMF World Economic Outlook, Author’s calculations
Other LNG market dynamics also work largely in Taiwan’s favor. European natural gas demand is in structural decline and greater non-Qatari supply (especially from the U.S.) is limiting the scale of the LNG price hike: global prices, including Asia’s JKM benchmark, stand at $20/MMBtu, or about 67 percent below 2022 levels. Sovereign and quasi-sovereign creditworthiness could loom large in a scramble for scarce LNG supplies, potentially advantaging large players like CNOOC, Sinopec, or PetroChina, all of mainland China. Indeed, China could be first-in-line to receive shipments from suppliers eager to maintain access to the world’s largest energy importer. At the same time, the U.S. is the world’s largest LNG exporter and accounts for about 30 percent of ex-Qatar global supply. Moreover, North American LNG export capacity will more than double from 2025 levels by 2029. Even leaving aside any notions of shared values, Washington has an economic and strategic interest in ensuring Taiwan and other democracies are energy secure.
Taiwan of course faces constraints in securing adequate energy supplies. The Public Debt Act – along with virtually all legislation in Taiwan – is a hostage to the island’s profound political polarization, constraining Taipei’s ability to undertake necessary energy security investments. Taiwan’s 2025 nuclear phaseout removed a dispatchable energy generation source that would have eased the current shock. Taipei is actively considering restarting nuclear energy generation but must go without the zero-carbon fuel source for the immediate future.
Taiwan may continue to import LNG, but it will likely pay a premium. Most of Taiwan’s LNG imports are tied up in long-term contracts, as Yu-Hsuan Yeh notes, and LNG spot markets are volatile. Long-term contracts typically enhance resiliency, but Qatar’s LNG export outage is leaving its counterparties to all scramble for limited alternative supplies at the same time. Taiwan also suffers from important physical and infrastructure bottlenecks, such as limited LNG import terminal capacity, zero Floating Storage and Regasification Units (FSRUs), and – perhaps most concerningly – limited storage levels. While these are serious concerns, especially over the medium term, Taiwan can undertake emergency measures, such as shifting more consumption to coal or outbidding other LNG importers.
Like other economies, Taiwan will turn to coal amid the crisis. Taiwan’s coal reserves typically stand at about 49 days of consumption, versus about 8-12 days for LNG. While coal use is clearly not desirable, given its air pollution and climate impacts, the fuel is necessary for Taiwan’s immediate needs. Taipei is already adapting to new energy realities, as demonstrated by its restart of two coal-fired generators, among other steps. If Taiwan cannot secure more LNG, it will burn coal instead.
Taiwan’s power sector is relatively well-positioned, but surging oil prices could hit hard
Accordingly, while Taiwan will experience pain amid higher energy prices, its semiconductor production is unlikely to face direct energy shortages. That could change if the PRC leverages the Middle East energy crisis to launch a quarantine or blockade of Taiwan or, much less likely, a snap invasion. While a Taiwan contingency remains highly unlikely in 2026, Western policymakers should continue monitoring the situation closely. Taiwan is making strides in boosting its capabilities and resiliency, including by purchasing U.S. military kit, but Taipei must invest more in its defense and energy security requirements, especially asymmetric military capabilities such as drones, anti-ship missiles, naval mines, and more.
At the same time, the U.S. – Iran war shows no signs of stopping and appears highly likely to continue for months, at minimum. With substantial amounts – up to 20 percent – of global oil production at risk of shut-in due to the war, energy prices are set to rise, fueling higher inflation and interest rates. Higher interest rates, in turn, will lift borrowing costs for capital expenditure-intensive industries, including the artificial intelligence companies purchasing Taiwan’s semiconductor exports. While Taiwan retains the ability to supply its power sector with LNG and coal, an oil-centric energy crisis will have unpredictable second and third-order consequences, including for the artificial intelligence buildout. Taiwan and other democracies should prepare for a long, difficult oil crisis.
Taipei’s low financial leverage may leave it well-positioned to power through the crisis by tapping debt markets and expanding strategic investments, both in Taiwan and overseas. Taiwan’s GDP stands at about 1 trillion dollars. If it removed the Public Debt Act’s cap and expanded central government debt levels by 40 percent of GDP, or about $400 billion USD, Taipei could hold a large, liquid wealth fund. The energy crisis will undoubtedly threaten Taiwan and other democracies, and no one should underestimate the profound political polarization in Taipei. Still, skillful maneuvering from Taipei, especially in lifting its debt levels, could strengthen its position and that of the coalition vis-à-vis Beijing.
Other PRC, Taiwan, and Russia energy geopolitics reading
For further reading on AI supply chains, I also recommend the following analyses of helium and sulfur, both by Dr. Alvin Camba.
The Gas Inside Your AI Chip – Alvin Camba for The Diplomat
The consequences for American AI are more immediate than they appear. Nvidia’s GPUs, Google’s TPUs, and the custom accelerators that Amazon, Microsoft, and Meta are deploying at scale all depend on TSMC’s Taiwan fabs at the 3nm and 2nm nodes. TSMC’s 3nm and 5nm production is fully booked through 2026, and Nvidia’s order backlog is measured in months. Any reduction in wafer starts tightens a constraint that was already structurally difficult before Ras Laffan went offline. Spot helium prices have already surged 70 to 100 percent; if the disruption extends beyond 60 days, analysts project contract price increases of 25 to 40 percent, costs TSMC passes to customers as higher wafer pricing. If the 45-day inventory clock runs out before Qatar restores output, TSMC faces the choice of rationing wafer starts, a decision with direct implications for Nvidia’s delivery schedule and the broader AI buildout.
Comment: If defense-related supply chains are relevant to you, I highly recommend Alvin’s Substack, Supply Line Politics.
Odd Lots: What War in Iran Means for China’s Teapot Oil Refineries – Erica Downs for Bloomberg
Comment: This is helpful and worth a listen.
Chinese importers are heavily exposed to the Middle East across crude and products. Roughly half of China’s crude comes from the region alongside one-third of its LNG. While officially, China does not import any oil from Iran, Kpler data points to 0.84 mb/d of imports in 2025, down from 1.2 mb/d in 2024. When taking Iranian volumes into account, in 2025, China imported half of its crude from the Middle East (Figure 1). It also relied on the Middle East for 40% of its naphtha imports and 45% of its LPG. Although the import exposure numbers are high, when framed in the broader context of China’s energy system, the reliance is slightly more limited. For example, Middle Eastern crude imports are 50% of supplies. While a very high proportion, it is limited when compared to Japan, India or Korea.
“To bolster near-term natural gas security, China may seek additional overland pipeline natural gas supply, especially with Central Asia, but potentially also with Russia. In the first week of the crisis, Chinese Communist Party General Secretary Xi Jinping met with Turkmenistan strongman Gurbanguly Berdimuhamedow to discuss greater energy cooperation. Beijing and Ashgabat have talked for years about expanding the Central Asia-to-China (CACP) pipeline network to include Line D. The Iran war may lead to a CACP breakthrough, but a more realistic outcome is that Beijing further pressures the Central Asian states, especially Turkmenistan, to quickly ramp up exports along existing CACP lines, as these volumes are not at capacity due to persistent underproduction in Turkmenistan and the region.”
The Iran War Has Exposed Taiwan’s Achilles’ Heel – David Fickling for Bloomberg
It’s commonly argued that the densely populated island simply doesn’t have the space for such installations. That’s not right, though. The Netherlands, which is about the same size, generates twice as much power from wind and solar. Some 54,000 hectares, representing about 10% of Taiwan’s farmland, is given over to agritourism. About the same area is left permanently fallow because it can’t generate an economic return. Together, that’s more than 20 times the 4,684 hectares used by Taiwan’s solar farms.
“[Helium is] a less visible but potentially important indicator of energy ties given the importance of helium to semiconductor manufacturing. The disruption to Qatar’s gas processing has exposed the fragility of the global helium market, with Qatar accounting for close to a third of world supply. China relies on imports for 85 percent of its helium, of which Qatar alone supplied 54 percent last year. China’s helium imports rose by 22 percent in 2025 to 1.04 billion cubic feet, with record imports in December and Russia as the main source of incremental growth. Russian helium exports to China averaged 38 million cubic feet (mmcf) per month in 2025, up 60 percent year-on-year, and December volumes reached 71 mmcf, suggesting a substantial ramp-up from Amur. If Qatari disruptions persist, Russia is well placed to further expand its role in China’s helium supply mix.”
The Price of Taiwan’s Energy Dependence – Domino Theory
Whether or not this crisis in the Middle East leads to a physical LNG shortage down the line in Taiwan, it highlights the island’s vulnerability to geopolitical shocks. Yeh-Tang Ricky Huang (黃業棠), the head of Climate Era Catalyst, a nonprofit focused on Taiwan’s decarbonization, put it this way: “If you are predominantly reliant on imported energy, you are going to run out at some point if the crisis persists.”
What Hormuz has exposed is not a temporary shock, but a permanent vulnerability built into the energy transition’s own design. The transition created surging demand for sulfuric acid to manufacture its hardware, while simultaneously reducing the fossil fuel throughput that produces it as a byproduct, with demand projected to rise from 246 to 400 million metric tons by 2040, even as supply peaks and declines.
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The medium-term response is harder because the geopolitics of sulfur supply do not map cleanly onto allied frameworks. The major alternative producers are Canada and the United States; the major buyers needing alternatives are Indonesia, India, and sub-Saharan Africa, a mix of strategic partners and nonaligned states that does not map onto a single allied framework.
“Conversely, while the oil and gas shortage could harm already-suffering South Korean, Taiwanese, and Japanese petrochemicals industries, it could help Chinese companies consolidate parts of the supply chain. While the profitability of Chinese petrochemical firms could take a short-term hit, they have access to abundant electricity—and China’s partner, Russia, is a major supplier of its petrochemicals feedstock, including naphtha, an ingredient that Asian petrochemical companies are scrambling to obtain.
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Disrupted fertilizer supply chains hold important geopolitical consequences… In the near term, Russia and Belarus are well-positioned to fill any gap left behind. Russia remains the world’s largest exporter of fertilizer, and Belarus is a major agricultural player in potash, a nutrient used for fertilizer. If Russia and Belarus face no export constraints, they are well-placed to exercise greater influence across global fertilizer markets.
China largely uses domestically-sourced coal as feedstock for ammonia and fertilizer production, so its output will not be directly constrained by a Strait of Hormuz closure. Over the medium term, Beijing may selectively step back into export markets if the geopolitical and commercial benefits outweigh domestic food security risks.
If global supply chain outages persist, Beijing, Moscow, and Minsk may cooperate more closely on global fertilizer distribution.”
Comment: I also spoke with DW’s The Dip podcast about potential authoritarian cooperation across global food supply chains.
Later this week the China-Russia Report CRR will publish another analysis of Taiwan’s energy security, especially the need to counter potential PRC sabotage; I’ll also publish a piece on evolving PRC-Russia ties in the wake of the Prigozhin mutiny. Thanks for reading.
Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative; he also edits the independent China-Russia Report. This analysis reflects his own personal opinion.
The China-Russia Report is an independent, nonpartisan newsletter covering political, economic, and security affairs within and between China and Russia. All articles, comments, op-eds, etc represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of The China-Russia Report.