By: Anit Mukherjee and Caroline Arkalji
As the war with Iran and effective closure of the Strait of Hormuz continue to disrupt global energy supplies, governments around the world are looking for ways to contain prices and explore options to ensure energy security. With benchmark crude oil hovering around $100 per barrel and expected to remain high for the foreseeable future, several developed countries such as Australia, France, and Germany, as well as developing countries in Asia and Africa such as Sri Lanka, Philippines, Ethiopia, and South Africa are reducing taxes, providing subsidies, and introducing rationing at an increasingly heavy fiscal cost. This has generated renewed interest in biofuels to both mitigate the current supply disruption and reduce long-term demand for fossil fuels.
One of the most widely adopted approaches is fuel blending, the practice of mixing biofuels such as ethanol and biodiesel with conventional gasoline and diesel to reduce reliance on petroleum. In Southeast Asia, the region most affected by the Middle East crisis, Indonesia mandated a 50% biodiesel blending requirement (B50) on July 1, eliminating the need for imports and containing energy subsidies expected to increase by nearly $5.9 billion in 2026. Its neighbor Malaysia has also announced an increase in blending mandates from 10 to 20% over the next year, while Vietnam switched to 10% ethanol blend in April this year.
Other countries are also following suit. Argentina will allow local firms to voluntarily blend up to 15% ethanol into gasoline in a bid to contain the impact from higher oil prices on local fuel costs. India, which achieved a 20% blend in 2025 five years ahead of target, is revising its mandate upwards to 25% to further reduce demand for crude oil imports. Brazil, the global leader in the use of biofuels, has already achieved a 27% blending mandate through a successful biofuels program started in the aftermath of the first oil shock in 1973. Most cars sold in Brazil have the ‘flex’ option, they can run either on gasoline or ethanol, something that India is also considering as it builds out its biofuels infrastructure.
While the demand for biofuels looks certain to increase as more countries impose blending mandates, the downside risks also need to be managed carefully. The disruption of global fertilizer supply and the energy crisis are increasingly spilling over into a food crisis, leaving little margin to divert land and feedstock such as palm oil, sugarcane, and rice for biofuel production. Water availability poses an additional challenge, particularly in drought prone regions, as certain biofuel feedstocks can place a significant pressure on already stressed freshwater resources. Balancing energy and food security, water sustainability will therefore be critical to ensure that the renewed push for biofuels does not create new vulnerabilities.
But as we note in a recently published paper, there is an opportunity to leapfrog existing production methods to address sustainability concerns as biofuels become economically viable. Increased use of crop residue as feedstock, shifting to non-crop based biofuels, and investing in research to develop new sources of production will address both. With 33 countries, including major producers such as the United States, Brazil, and India, and 14 international organizations joining the Global Biofuels Alliance (GBA) established during India’s G20 presidency in 2023, there is a mechanism to harmonize policies and promote technical cooperation.
As governments respond to renewed energy insecurity and volatile oil markets, the challenge is no longer simply increasing blending mandates, but building the broader ecosystem necessary to support large-scale and sustainable biofuel production. This is where the GBA could become increasingly important. Beyond expanding supply, the alliance has the potential to reduce fragmentation across global biofuel markets by promoting greater alignment in standards, certification systems, and blending frameworks, while facilitating technical cooperation among both established and emerging producers. Discussions around initiatives such as Sustainable Aviation Fuels corridors also illustrate how the alliance could support greater regulatory alignment across emerging low-carbon fuel markets.
The alliance could also help accelerate the commercialization of advanced biofuels derived from non-food biomass, including agricultural residues, wood waste, and used cooking oils, which are increasingly viewed as critical for decarbonizing hard-to-abate sectors such as aviation and shipping. Technologies capable of converting crop residue waste into ethanol, sustainable aviation fuel, and bio-methanol could help address growing concerns over the impact of food-based biofuels on land use, biodiversity, and food security, while creating new industrial opportunities across the Global South.
Equally important is the GBA’s potential role in mobilizing investment and diffusing best practices. Scaling advanced biofuels will require substantial investment in refining infrastructure, logistics systems, and next-generation conversion technologies. Through policy coordination, technology transfer, and knowledge-sharing among major producers such as Brazil, India, Indonesia, and the United States, the GBA could help lower investment risks for emerging producers while supporting the development of more competitive domestic biofuel industries. If implemented effectively, the alliance could help position biofuels not simply as a short-term response to supply disruptions, but as a more strategic pillar of long-term energy security, industrial development, and energy transitions.
Anit Mukherjee is Senior Fellow for the Global Economics & Development program at ORF America and Caroline Arkalji is Junior Fellow at ORF America.