Asia faces mounting cost of Iran war energy disruption

Asian economies, heavily dependent on imported crude, are increasingly feeling the pressure from the ongoing Iran war, as governments struggle to secure alternative supplies and cushion domestic markets from soaring energy costs.

The Asian Development Bank has revised its outlook, cutting growth forecasts for developing Asia and the Pacific to 4.7 per cent for this year and 4.8 per cent for 2027, down from 5.1 per cent earlier. At the same time, inflation expectations have been raised to 5.2 per cent, reflecting sustained energy-driven price pressures.

Trade data shows the scale of disruption: oil imports to Asia - which accounts for around 85 per cent of Gulf crude shipments - fell 30 per cent in April year-on-year, reaching their lowest level since 2015, according to Kpler. The decline follows nearly two months of disruption in the Strait of Hormuz, a critical route for about one-fifth of global oil and gas flows.

The fallout is widening fiscal stress across the region, especially in South Asia, where governments are spending heavily on fuel subsidies, tax cuts and price controls to protect consumers. Analysts say these measures are straining already limited fiscal buffers.

Countries are responding in different ways. India has absorbed much of the price shock through state refiners, while Pakistan has resumed LNG tenders at significantly higher costs. Indonesia is prioritising domestic supply over exports, and Japan is expanding purchases from the United States while drawing down strategic reserves.

China has so far remained relatively insulated due to large stockpiles and diversified supply chains, though selective export adjustments are being made to manage regional demand.

Currency markets also reflect the pressure, with several Asian currencies hitting record lows against the US dollar, particularly in South and Southeast Asia.

Despite the challenges, some analysts note that the region has so far avoided a worst-case scenario, though concerns remain over how long governments can continue to rely on reserves, subsidies and stockpiles to stabilise markets.