Taiwan is allocating the equivalent of $13 billion for energy cost support for state power generation company Taipower and refiner CPC, Reuters has reported, to offset the sharp cost inflation resulting from the war in the Middle East.

Taiwan is already subsidizing energy costs for consumers to avoid a spike in bills, unlike other countries that have passed additional costs on to consumers and businesses, despite efforts to cushion the blow with excise duty cuts and other measures.

The situation with state oil refiner CPC is particularly challenging, Taiwan’s economy ministry said, adding that the company “cannot absorb the difference between adjusted and non-adjusted oil and gas prices.”

“Without supplementary budgets, both CPC and Taipower may struggle to continue serving as price stabilisers, causing price volatility,” the ministry also said.

Asian nations have suffered the most severe effects of higher oil and gas prices driven by the U.S. and Israeli war against Iran due to their greater dependence on hydrocarbon supplies from the Middle East.

Taiwan is among the most import-dependent Asian nations, relying on overseas supplies for as much as 94% to 97% of its consumption. It is particularly dependent on imports of liquefied natural gas, which it has been sourcing from Qatar and the United Arab Emirates under long-term supply deals. Natural gas accounts for over 23% of the island’s power generation, with another 36% coming from oil and almost 32% generated from coal.

Making matters worse is the fact that Taiwan is a major electronics maker, which means demand for electricity is stronger than in other import-dependent countries. Semiconductor heavyweight TSMC alone consumes as much as 8% of Taiwan’s electricity.

Increased imports of liquefied natural gas from the United States have reduced the risk of a shortage but they come with a high price tag, which needs to be offset, at least partially, to keep industry competitive.

Source: Oilprice