South Korea and Taiwan are under increasing pressure from rising liquefied natural gas (LNG) prices, driven by supply disruptions in the Middle East, according to analysts at MUFG Bank. In a research note issued Thursday, analyst Lloyd Chan highlighted that both countries face heightened risks from elevated gas prices due to their heavy reliance on imported LNG and the significant role natural gas plays in their power generation mix.

Import Dependency and Power Generation

Chan noted that both South Korea and Taiwan import nearly all of their gas requirements, with natural gas accounting for a relatively high share of their electricity generation. This makes them particularly vulnerable to sustained increases in LNG prices.

LNG prices have risen sharply following the shutdown of Qatar’s largest LNG export plant after Iranian attacks. Qatar, one of the world’s top LNG exporters, alongside the United States and Australia, accounts for about 20 per cent of global LNG trade. Approximately 86 per cent of LNG volumes passing through the Strait of Hormuz are delivered to Asia, with China, India, Taiwan and South Korea accounting for about 60 per cent of those flows.

Any prolonged disruption in this critical shipping lane could tighten supply conditions for key Asian buyers already dealing with volatile energy markets. While oil prices have not surged to the extreme levels seen during the Russia-Ukraine conflict, the sharper move in LNG markets presents a more direct inflationary risk for import-dependent economies in the region.

Economic and Monetary Policy Implications

For South Korea and Taiwan, higher LNG prices could feed into electricity tariffs and broader consumer prices, complicating the monetary policy outlook. Chan suggested that the rising risk of energy-driven inflation could keep both the Bank of Korea and Taiwan’s central bank cautious, potentially limiting their ability to ease monetary policy even if economic growth slows.

South Korea’s benchmark KOSPI index has already fallen sharply over the past two sessions, reflecting investor concerns about the impact of higher energy costs on corporate margins and domestic demand. For export-oriented economies such as South Korea and Taiwan, a prolonged period of elevated LNG prices could squeeze trade balances, pressure currencies and add to input costs for manufacturers, particularly in energy-intensive sectors such as semiconductors and heavy industry.

Regional Disparities and Future Outlook

The shock is not uniform across Asia. Malaysia, for instance, may benefit from higher oil prices given its status as a net energy exporter, with improved terms of trade potentially supporting the ringgit, according to the MUFG report.

Still, for much of North Asia, the combination of supply disruptions in the Gulf and heavy reliance on imported gas highlights the region’s structural exposure to geopolitical energy shocks. If LNG prices remain elevated, the resulting inflationary impulse could narrow the room for policy maneuver just as global growth risks begin to mount.

Analysts are closely watching the situation, with forward-looking implications suggesting that both South Korea and Taiwan may need to consider long-term energy diversification strategies. The potential for further disruptions in the Middle East, coupled with the already strained energy markets, could lead to more volatility in the coming months. The report emphasizes that the current situation highlights the need for Asian economies to reduce their dependence on imported LNG and explore alternative energy sources to mitigate future shocks.