Asian governmentsare racing to cushion their economies from a deepening energy shock triggered by the Iran war, as supply disruptions and surging crude prices ripple across the world’s largest oil-importing region. According to Reuters, policymakers are deploying a mix of subsidies, trade controls, and strategic reserves, but the financial burden is mounting quickly.
The crisis has already begun to weigh on growth prospects. Reuters reported that the Asian Development Bank has trimmed its growth forecast for developing Asia and the Pacific to 4.7% this year and 4.8% in 2027, down from earlier projections of 5.1%. At the same time, inflation expectations have been raised to 5.2%, reflecting the pass-through of higher energy costs into broader prices.
A key driver of the disruption has been the near-closure of the Strait of Hormuz, a vital artery forglobal energy flows. Reuters data showed that Asia, which typically absorbs about 85% ofGulf crude shipments, saw oil imports plunge 30% year-on-year in April to their lowest levels since October 2015. The sharp drop underscores the region’s heavy dependence on Middle Eastern supplies and its vulnerability to geopolitical shocks.
Governments across Asia are increasingly leaning on fiscal measures to shield consumers. Billions of dollars are being spent on fuel subsidies and tax cuts, particularly in South Asia, where public finances are already stretched. India’s state-dominated refining sector, for instance, has held retail fuel prices steady despite rising crude costs, absorbing significant losses that could eventually lead to price hikes after recent state elections.
Beyond subsidies, several countries have introduced administrative controls to manage the crisis. According to Reuters, some governments have restricted fuel exports, curbed domestic consumption, and taken steps to prevent hoarding. Others, including Australia, are pursuing diplomatic channels to secure stable energy access.
China has relied on its relatively strong buffers to weather the shock. The country has drawn on large reserves, diversified its energy sourcing, and imposed export controls on fuel and fertiliser, while selectively allowing supplies to flow to certain regional partners. This has helped Beijing limit domestic disruptions compared to more import-dependent economies.
Despite these efforts, currency markets reflect growing stress. Several Asian currencies have weakened sharply against the U.S. dollar since the conflict began in late February.
The Philippine peso has fallen more than 5%, while the Thai baht and Indian rupee have each declined over 3%, and Indonesia’s rupiah has dropped more than 2.5%. In contrast, China’s yuan has strengthened modestly, while Japan has intervened to support the yen.
The impact is particularly severe in South Asia. Reuters cites analysis indicating that Pakistan, Bangladesh, and Sri Lanka are among the most vulnerable due to limited fiscal headroom and high dependence on imported energy. Pakistan, for example, has re-entered the liquefied natural gas market after a long gap, paying significantly higher prices to secure supplies amid tight global conditions.
Still, the overall economic fallout has not been as severe as initially feared. Some analysts believe Asia’s resilience so far reflects stronger fundamentals compared to previous crises, including the 2022 energy shock following the Ukraine war. However, concerns remain about how long governments can sustain current support measures without exhausting fiscal and foreign exchange buffers.
Countries are also adapting their energy strategies in real time. Indonesia has prioritised domestic supply over exports and is seeking alternative crude sources from Africa and Latin America, while planning substantial purchases from Russia. Thailand has paused crude imports temporarily due to rising refined product inventories, aided by weaker demand. Japan, heavily reliant on Middle Eastern oil, has increased purchases from the United States despite higher costs and longer shipping times, and has begun releasing crude from its strategic reserves.
As the conflict continues, the central question for Asia is not just how to manage the immediate shock, but whether current coping mechanisms—ranging from subsidies to stockpile drawdowns—are sustainable if disruptions persist.
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