Asia Grapples with Economic Effects of Energy Crisis from Iran War

SINGAPORE – Governments across Asia, the world's top oil-importing region, are working to secure alternative supplies and protect their economies from the energy disruptions caused by the war in Iran, which began at the end of February 2026. The conflict has led to a near-closure of the Strait of Hormuz, a passage for about a fifth of global oil and gas supplies.

Oil imports to Asia, which accounts for 85% of Gulf crude shipments, dropped 30% in April 2026 compared to the previous year, reaching the lowest level since October 2015, according to data from Kpler.

The Asian Development Bank reduced its growth forecast for developing Asia and the Pacific to 4.7% for 2026 and 4.8% for 2027, down from previous estimates of 5.1% for both years. The bank also increased its inflation outlook to 5.2% for 2026. Goldman Sachs stated that the economic impact on Asia has been less severe than initially anticipated.

However, the firm adjusted its 2026 growth forecasts downward for Japan and some Southeast Asian countries, while slightly raising inflation expectations. In a note, Goldman Sachs analysts questioned whether the region's resilience stems from structural factors or from unsustainable use of buffer stocks.

Asia's emerging market currencies have depreciated more significantly against the U.S. dollar than those of global peers and the region's larger economies. The Philippine peso, Indian rupee, and Indonesian rupiah have all reached record lows. Since the war's start, the Philippine peso has fallen more than 5%, the Thai baht and Indian rupee more than 3% each, and the Indonesian rupiah more than 2.5%.

By contrast, China's yuan has risen 0.8% against the dollar, and Japan's yen is up 0.4% from pre-war levels following interventions. South Korea's won has declined about 1.1%. Economies in South Asia, including Pakistan, Bangladesh, and Sri Lanka, face heightened vulnerability, according to S&P Global Market Intelligence.

Fiscal pressures are increasing, especially in South Asia, as governments allocate billions for subsidies and import duty waivers. "The first line of defense … is that the governments decided to absorb the initial shock by either providing subsidies or cutting excise duties on fuel products," said Hanna Luchnikava-Schorsch of S&P Global Market Intelligence.

India's state-dominated refining sector has maintained steady fuel prices despite rising crude costs, resulting in losses of about 100 rupees ($1.06) per liter on diesel and 20 rupees per liter on gasoline. Some analysts anticipate price increases following the completion of state polls in April 2026.

China, the largest oil importer globally, has utilized its reserves, diversified supply chains, and imposed export curbs on fuel and fertilizer, while granting exceptions for buyers in countries such as Australia and Myanmar. Indonesia, an energy producer, has directed operators to prioritize domestic markets and halted non-contracted LNG shipments.

The country is sourcing oil from Africa and Latin America and plans to purchase 150 million barrels from Russia by the end of 2026. In Thailand, a state-owned refiner has suspended crude purchases due to rising stocks of refined products after increased output and an export ban.

High prices and usage restrictions have contributed to reduced demand. Japan, which sources 95% of its oil from the Middle East, has increased purchases of U.S. oil at elevated spot prices, with shipping times twice as long as from the Gulf. Pakistan has issued tenders for liquefied natural gas, paying $18.88 per million British thermal units for one cargo, approximately $30 million more than pre-war market prices, based on Reuters calculations.

The country aims to replace supplies previously sourced from Qatar. Regional governments have implemented measures to limit fuel consumption, prevent hoarding, and curb exports, while pursuing diplomatic efforts to secure access. S&P Global Market Intelligence noted that these economies are better positioned than during the 2022 Ukraine war energy shock.

"These countries use more of their resources on subsidizing domestic public energy enterprises and basically shielding the final consumers from the energy price shock," added Hanna Luchnikava-Schorsch, the S&P unit’s head of Asia-Pacific economics.