Iran War Energy Shock Drives Interest in Ethanol and Other Biofuels across Hard-Hit Asia

May 15, 2026

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by Sibi Arasu and Anton L. Delgado (Associated Press) ... Against the backdrop of cooking gas shortages and crude oil price increases, India has proposed letting vehicles run on 85%, or even 100%, ethanol. On Friday, India increased its petrol and diesel prices and local news outlets reported panic buying leading to long queues in India’s Odisha state. India has also banned all exports of sugar at least through September to ensure a local supply of sugar, but also to ensure enough raw material is available if ethanol blending levels are to be increased.

The government claims more ethanol will reduce vehicle pollution, but drivers have concerns about mileage.

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Asia was first and hardest hit by fossil fuel disruptions caused by the Iran war’s closure of the Strait of Hormuz, a critical shipping artery for energy.

As nations brace for a second wave of impacts, governments want to use more biofuels to slash fuel imports. Indonesia and Malaysia are also pushing policies to increase fuel mixing with palm oil-based substitutes, though experts warn this could drive agricultural expansion and deforestation.

Despite this war-driven interest, it may still take years for higher fuel blends to hit the road in Asia because of time needed for developing supply chains, researching new blends and testing vehicle compatibility.

India blends biofuels to cut costs

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Prime Minister Narendra Modi asked Indians this month to make “nationally responsible choices” to save fuel by using more public transport, carpooling and skipping international travel.

India imports nearly 90% of its crude oil, so the Iran war has hampered vehicles that need gasoline and millions of homes and restaurants that need LPG.

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Most fuel pumps in India now sell a 20% ethanol blend after the country achieved its goal to roll the blend out nationally in 2025, five years ahead of a government target. Policymakers are considering increasing the blend across all gasoline up to 27% by 2030. The recent announcement by India’s transport ministry proposing to allow vehicles that run on 85% ethanol, or even fully on it, is the strongest signal so far to automobile makers to begin producing vehicles compatible with such high blending. The timeline for these even higher blends is still unclear.

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India’s 20% ethanol blend led to a 2.5% reduction in crude oil imports in 2025, according to the Institute for Energy Economics and Financial Analysis.

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Southeast Asia raises biofuel ambitions

Southeast Asia similarly sees bioenergy as a way to shield itself from the current crisis and future shocks, according to Reza Yosri, an energy expert at the consultancy Ramboll.

Indonesia wants to increase fuel blending to 50% biodiesel, up from 40%, under a program launched in March by President Prabowo Subianto, who said, “We ⁠are going in a big way to biofuel.”

The biofuel initiative is part of Indonesia’s push for “energy sovereignty” in response to the recent fuel disruptions, according to Putra Adhiguna of Jakarta-based Energy Shift Institute.

Fuel blending will also help Indonesia develop a local market for the palm oil it sells globally, he said. But he cautioned that land clearing and deforestation must be monitored.

In April, Malaysia approved a proposal to gradually increase its fuel mixing to 15% biodiesel and 85% fossil diesel, with a future 20% blend under consideration.

Skyrocketing fuel costs have “revived the idea,” said Ahmad Rafdi Endut, a Kuala Lumpur-based energy analyst.

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Das (Shyamasis Das of the New Delhi-based Centre for Social and Economic Progress), with CSEP, said producing ethanol from materials that do not require additional land or water — like agricultural residues, municipal waste and used oils — is key. READ MORE

Related articles

US, Brazil see jump in ethanol exports as consumers seek to boost fuel supplies (Reuters)
Iran war fallout triggers massive biofuel shift across Asia (South China Morning Post)
(Indonesian) Govt to deploy mandatory E5 bioethanol, B50 biodiesel program in July (Jakarta Post)
Could biofuels be the antidote that Asia needs for oil shocks? (The Straits Times)
How the Strait of Hormuz standoff flipped the energy security debate (CNBC)
Fragmentation in the Global Energy Transition as Geopolitical Risks Surge (World Economic Forum)
Indonesia's biofuel mandate faces test after global oil prices tumble (Reuters)
Asia Bets on Biofuels to Dodge Middle East Oil Shortages (OilPrice.com)

Excerpt from Reuters: Several countries, particularly in Asia, are raising ethanol blending rates in gasoline, Datagro's chief analyst Plinio Nastari said.

"Some of them have some production, but they will need to import part of that ethanol," he said.

Even if there is a ⁠deal soon between Iran and the U.S. to reopen Hormuz, renewable energy makers believe the higher demand is here to stay, due to energy security.

Countries around the world want to reduce their dependence on one big source of energy such as the Middle East, where tensions will likely continue ⁠high even if there is a deal, said Shameek Konar, head of energy at Ara Partners, a private equity firm investing in renewable energy projects in the U.S., including biofuels.

"This conflict brought energy security in the focus of every policy maker in the world," ⁠he said during a presentation at the BMO Farm to Market Conference in New York.

Brazil will increase ethanol production by some 4 billion liters in the new season to a record 41.4 billion liters, said Datagro.

The U.S. will add 1 billion gallons of ethanol production capacity in 12 to 18 months, said RFA. READ MORE

Excerpt from The Straits Times: On May 13, India, the world’s second-largest producer and exporter of sugar, banned most forms of sugar exports until Sept 30, pushing up global prices.

A key reason for the ban is an anticipated fall in domestic sugarcane production because of lower-than-normal monsoon rainfall, leading to a supply crunch that could increase local sugar prices.

But there is another factor at play. India has increasingly diverted sugarcane juice and molasses towards ethanol production in recent years. Allowing unrestricted export of sugar would have meant less feedstock for its enhanced biofuel production ambitions.

Similarly, Jakarta’s move was followed by a decision on May 20 to centralise exports of key commodities, including palm oil, requiring them to pass through a state agency, raising fears of a global supply disruption. Its past steps to curb palm oil exports sought to prioritise local sales and boost feedstocks for biodiesel.

Growing palm oil demand

Indonesia’s decision to ramp up biodiesel use comes as domestic palm oil output has largely stagnated, contrasting sharply with surging local demand.

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Adopting domestic biofuels is an attractive alternative, especially when imported fossil fuels remain at high prices. According to one estimate, achieving the 20 per cent ethanol blend has helped India save nearly 45 million barrels of crude oil annually, while reducing foreign exchange outflow by around 1.5 trillion rupees (S$20 billion).

In Malaysia, rising crude oil prices have narrowed the cost gap between palm-based biodiesel and ordinary diesel, something that had stalled Kuala Lumpur’s push for higher blending mandates.

Agricultural economist Julian McGill said Malaysian biodiesel will remain a cost-effective alternative to diesel as long as Brent crude oil hovers above US$85 per barrel while Malaysia’s palm oil price stays at around US$1,120 per tonne.

The widening gap between gas oil and palm oil prices has also fundamentally altered the economics of biodiesel in Indonesia, noted public policy expert Lin Che Wei.

The price of diesel rose sharply – from around US$95 per barrel before recent geopolitical shocks, to nearly US$200 at its peak – before moderating to about US$145. Palm oil prices, by contrast, increased by only around 17 per cent to 20 per cent, making it more attractive.

But while using biodiesel domestically saves US dollars by cutting reliance on imported fossil diesel, it also means forsaking vital foreign exchange earned from palm oil exports.

“Any decision to raise biodiesel blending (therefore) must carefully weigh both benefits: export earnings versus diesel-import savings,” said Mr Lin.

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Dr Shweta Saini, CEO of Arcus Policy Research, a New Delhi-based research organisation, said India must prioritise food crops first for human consumption, and then for animal feed and, finally, for biofuels.

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While driving up crop yields to meet greater biofuel feedstock demand is necessary, doing so has increasingly become a challenge because of more extreme weather. Lower rainfall associated with El Nino, for instance, has led to greater reliance on irrigation – driving up groundwater usage – and the need for higher-yielding varieties, something Dr Saini noted that India has had limited success with in recent years, with the exception of maize.

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Mr Luke Holt, director for energy for the Asia-Pacific at Ramboll, a global architecture, engineering and consultancy firm, said the most important guard rail in managing the food-versus-fuel trade-off is to prioritise waste and residue feedstocks, such as used cooking oil and agricultural residues like rice stalks and forestry trimmings, as the foundation of biofuel strategies.

“Relying on purpose-grown food crops, whether grains or palm oil, introduces direct competition with food supply, exposes markets to price volatility, and can amplify shocks when geopolitics disrupt global commodity and shipping flows,” he told ST.

India has intensified its efforts to turn agricultural and municipal waste, as well as industrial by-products, into biofuel. This includes a mandate to increase the blend of compressed biogas, produced from waste such as crop residues and cattle dung, in natural gas from 1 per cent in March 2026 to 5 per cent by March 2029.

“Clearly we see that India’s biofuel portfolio should shift, at least in the longer run, away from food grains to residue and waste-based streams,” said Dr Saini.

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Countries also need to redefine what efficiency means in the wider context of biofuels. This involves moving away from a narrow focus on output volumes – how many litres are produced from what quantity of food crop – to verified life-cycle carbon intensity and overall system performance.

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He (Holt) noted that achieving this will require improving conversion yields while lowering energy and water intensity; designing biofuel policy around carbon intensity and not just production targets; and strengthening traceability and certification systems.

“Countries that prioritise waste-based feedstocks, proven technologies and credible sustainability frameworks are far more likely to achieve durable outcomes than those pursuing rapid expansion without these safeguards.” READ MORE

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used cooking oil (UCO)/yellow grease Transportation Fuels Policy Sustainability supply chain sugar palm oil MSW (Municipal Solid Waste) mileage Middle East markets/sales market forces Malaysia liquid petroleum gas (LPG) Indonesia India import/export gasoline price fuel prices ethanol/bioethanol energy security energy independence energy density E85 E27 E20 diesel prices deforestation cooking fuel Brazil Biofuels B50 B40 B20 B15 Asia Agricultural waste/residue 2nd generation biofuels

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