Iran war disrupts oil supplies, putting increasing energy pressure on Asian economies

SINGAPORE: Asian economies are rushing to insulate themselves from an intensifying energy crisis spurred by the Iran war, with rising fuel prices and broken oil supplies further threatening the region’s financial stability.

The war has had a serious effect on global energy markets, especially after the disruption around the Strait of Hormuz, which accounts for almost a fifth of the world’s oil and gas supply. Asia’s oil imports from the Gulf fell to the lowest since 2015 in April, down almost 30 per cent from a year ago, data from shipping data firm Kpler showed.

The crisis has led the Asian Development Bank to cut its forecast for economic growth in developing Asia and the Pacific and to warn that inflation across the region is also likely to rise sharply.

Nations heavily dependent on imported fuel are now shelling out billions in subsidies, tax cuts and emergency energy measures to shield consumers from rising prices. Analysts say South Asian economies, including Pakistan, Bangladesh and Sri Lanka, are some of the most vulnerable due to limited financial reserves and a heavy reliance on imported energy.

India has kept domestic fuel prices unchanged so far despite massive increases in the cost of crude oil, with state-owned refiners reportedly bearing huge losses. But analysts believe that fuel price increases may be unavoidable in the coming months.
Several Asian countries have also announced emergency measures to save fuel and stabilise supplies. Some governments have curbed exports, increased restrictions on fuel hoarding and accelerated efforts to diversify their energy imports.

China, the world’s biggest oil importer, has insulated itself with large strategic reserves and a diversified energy mix. Meanwhile, Japan has boosted its crude purchases from the United States and recently tapped its emergency oil stockpiles to ease the pressure on supplies.

Indonesia has told energy companies to favour domestic supply over exports in Southeast Asia and is looking at new oil imports from Africa, Latin America and Russia to cut dependence on Middle Eastern crude.

Several Asian economies have also seen their currencies drop sharply against the US dollar since the start of the conflict, which has increased import costs and added to economic pressures. That has seen the Philippine peso, Indian rupee and Indonesian rupiah hit record or near-record lows in recent months.

Economists say Asian economies are still in a stronger position than during the global energy shock caused by the Ukraine war in 2022, despite growing pressure. But experts warn a prolonged Middle East conflict could put more pressure on government budgets, increase inflation and slow economic growth across the region.