Asia Grapples with Economic Effects of Energy Crisis from Iran War

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.