Taiwan fuel prices stabilize after sharp rise, but experts warn high energy costs may persist

After a sharp late-July increase driven by escalating Middle East tensions, Taiwan's gasoline and diesel prices have stabilized, but experts warn elevated energy costs could persist, pressuring inflation, electricity tariffs and energy-intensive industries. 

Fuel prices pause after late-July surge

Taiwan's motorists received a brief reprieve in early August after state-run CPC Corporation held gasoline and diesel prices unchanged for the weeks beginning Aug. 3 as well as Aug. 10, following a steep increase the previous week.

The decision came after gasoline prices rose NT$0.7 (about US$0.02) per liter on July 27 as the expanding Middle East conflict and worsening Red Sea crisis pushed international oil prices higher.

Although retail prices have stabilized for now, experts cautioned that the pause should not be mistaken for a return to normality.

The volatility reflects a broader geopolitical crisis that continues to threaten one of the world's most critical maritime energy corridors, with effects likely to persist over the longer term.

For Taiwan — an economy that imports more than 95% of its energy — the stakes are particularly high.

Strait of Hormuz remains the world's energy chokepoint

Clark Wu (吳季愷), director of APAC Corporates at Fitch Ratings, wrote on LinkedIn that even if the Strait of Hormuz reopens in the second half of 2026, global energy trade and supply chains will require considerably more time to normalize.

Wu added that Brent crude prices could remain elevated throughout the remainder of this year, and that Taiwan may continue facing relatively expensive energy imports for an extended period.

Wu stated that Taiwan has thus far weathered the disruption better than many Asian economies, as the government and state-owned enterprises managed to secure imports through multiple procurement channels, helping maintain relatively stable fuel supplies.

Wu said that Taiwan has not followed neighboring countries’ demand-control measures. He said that Indonesia has imposed fuel quotas and encouraged remote work, Sri Lanka temporarily suspended work across parts of the public sector, while Thailand introduced restrictions on fuel purchases.

That resilience has come at a cost, Wu said.

Financial pressure mounts on state energy companies

Wu warned that Taiwan's domestic energy prices still do not fully reflect international costs, leaving mounting financial pressure on both CPC Corporation and Taipower, the state-owned power utility.

As international oil and liquefied natural gas (LNG) prices remain elevated, the burden of absorbing losses increasingly falls on state-owned enterprises.

Wu also noted that a sudden collapse in global oil and gas prices could also generate substantial accounting losses for CPC by eroding the value of higher-priced inventories accumulated during the crisis.

Wu further noted that Taiwan raised electricity prices by an average of roughly 11% a year from 2022 to 2025. Should additional adjustments become necessary, energy-intensive traditional industries would bear the greatest burden.

The sectors most exposed include petrochemicals, textile fibers, steel manufacturing, and retail. Wu estimated that a 10% increase in electricity prices could deepen operating losses for many firms already facing narrow margins.

Conflict extends beyond Hormuz

Middle East affairs specialist Liu Yen-ting (劉燕婷) told TCN on Aug. 6 that the latest escalation of the US-Iran conflict — with regard to Ukraine, Saudi Arabia, Iraq, Egypt, and Yemen — reflects far more than a localized maritime dispute.

Rather, she described the conflict as the convergence of two parallel dynamics: unresolved disagreements between the United States and Iran over the future of the Strait of Hormuz, and deliberate escalation by multiple regional actors seeking greater negotiating leverage.

Since July, hostilities have expanded geographically, Liu said.

Iran has mobilized groups within what it calls the "Axis of Resistance," including allied militias in Iraq and Yemen's Houthis, while attacks have spread beyond Hormuz toward the Bab el-Mandeb Strait and even areas connected to the Suez Canal.

Meanwhile, the United States and its regional partners have likewise increased military pressure on Iranian-backed forces, producing what Liu characterized as a cycle of reciprocal escalation designed primarily to strengthen each side's bargaining position rather than to trigger an outright regional war.

Liu added that Iran said it had reached an agreement with Oman over shipping routes, and that the Strait of Hormuz may reopen in the coming days, which she described as a potentially positive development.

Liu stated that with both sides back at the negotiating table, she saw no current signs that the conflict would escalate globally.

The BBC reported on Aug. 6 that Iran said it had reached an agreement with Oman on shipping routes through the Strait of Hormuz.

Shipping costs may stay elevated long after waterway reopens

Liu cautioned that reopening the Strait of Hormuz alone will not immediately restore global shipping.

Clearing naval mines takes time, shipowners remain wary of renewed attacks, and war-risk insurance premiums have surged from roughly 0.25% of vessel value before the conflict to between 3% and 8%.

Higher insurance costs have encouraged shipping companies to reroute cargo through alternative ports including Jebel Ali, Colombo, Singapore, and Tanjung Pelepas, creating congestion throughout Asia's transshipment network.

At the same time, containers stranded across Gulf ports have generated imbalances that could take months to unwind.

Liu pointed to the Red Sea shipping crisis as evidence. Traffic through the Suez Canal remained about 60% below pre-crisis levels 100 days after the last Houthi attack, underscoring how slowly shipping networks can recover even after hostilities ease. 

Beyond fuel prices: Broader economic consequences

Both experts said that oil-price shocks can reverberate through highly financialized global markets, meaning localized supply disruptions can rapidly become worldwide price shocks.

Liu added that as Asian refiners seek alternative crude supplies from West Africa or the Americas, intensified competition raises spot premiums that ultimately feed into global benchmark pricing mechanisms such as Brent and WTI, even in regions experiencing no physical shortages.

For Taiwan, the implications extend beyond motorists paying more at the pump.

Persistently elevated fuel and electricity costs risk feeding broader inflationary pressures, compressing corporate profitability, and weakening the competitiveness of energy-intensive manufacturers that underpin much of Taiwan's industrial economy.

While recent stability in retail fuel prices offers temporary relief, both experts agree that the island's energy outlook remains closely tethered to geopolitical developments thousands of kilometers away.

Liu said Taiwan's outlook will remain tied to developments in the Strait of Hormuz until shipping routes normalize and regional tensions subside. She said uncertainty also extends to wider regional conflicts involving Israel, Hamas and Lebanon, Iran-backed militias in Iraq and Houthi attacks in the Red Sea.