Asian economies heavily dependent on imported oil and gas face higher fuel costs, widening trade deficits and slower growth if disruption to Middle East energy flows persists.

Asian economies reliant on energy imports are bracing themselves not just for a spike in oil prices but for the possibility that the Iran war could trigger a prolonged period of energy market disruption.

While markets have already priced in the initial disruption to shipping and energy infrastructure linked to the conflict, economists warn that a war lasting several weeks could leave Asian importers facing persistently higher fuel costs, widening trade deficits and slower economic growth.

According to a report by ratings agency Fitch, Pakistan and India are among emerging markets most exposed to sustained disruption to traffic through the Strait of Hormuz near Iran, through which about a fifth of global oil supplies normally flow.

“For most major emerging markets, higher oil and gas prices would result in a deterioration in the terms of trade,” Fitch said. “That is most notable in Morocco, Pakistan and Thailand, where energy deficits exceed four per cent of GDP.”

China, the Philippines and Indonesia were also affected by the conflict, the report added.

Asia’s vulnerability has also increased as spot prices for natural gas have more than doubled to three-year highs, reaching over US$25 per MMBtu after Qatar Energy declared force majeure following drone attacks on its Ras Laffran plant.

Analysts said countries across Asia would feel the impact of the conflict, although to varying degrees, particularly if the disruption to energy flows persisted.

“South Asia is generally a region that is dependent on energy imports, and hence the price shock will undoubtedly bite,” said Jamus Lim, an associate professor of economics at the ESSEC Business School.

Pakistan has ordered sweeping austerity measures, including a four-day work week for government employees and a two-week school closure, to save energy amid a crisis linked to the Middle East conflict.

Authorities in Bangladesh moved the Eid ul-Fitr holidays forward and imposed a daily limit on fuel sales to conserve electricity.

India has implemented several measures to secure energy supplies and manage demand, including invoking emergency powers to maximise liquefied petroleum gas production and prioritising domestic, residential and transport needs.

Elsewhere in Asia, the Philippines introduced a four-day work week for government employees, while Vietnam has encouraged people to work from home.

“These policies can lower energy consumption quickly, which is particularly important for economies running current account deficits or facing potential supply shortages,” said Gareth Leather, senior Asia economist at Capital Economics.

However, he noted that such administrative measures tended to allocate energy inefficiently and could disrupt economic activity.

“Some governments are looking to introduce inflation-suppressing measures such as subsidies or price caps, but these provide limited incentives for energy conservation and can be fiscally expensive,” Leather said.

“Countries with weaker fiscal positions may have no choice but to allow prices to rise sharply.”

Higher import costs would pinch economies with already stretched financing capacity, such as Pakistan, or those with current account deficits such as the Philippines, Fitch said in a separate report.

The disruption of traffic through the Strait of Hormuz means that major importers like China, India, Japan and South Korea would also face higher inflation, reduced manufacturing output and increased trade deficits.

“For giants like China, India and Japan, this is not a market fluctuation; it is an existential threat. The Strait of Hormuz is the jugular vein of global trade,” said Cedomir Nestorovic, professor of geopolitics at Singapore’s ESSEC Business School Asia-Pacific.

“As tankers scramble to bypass the Persian Gulf or wait for ‘safe passage’ guarantees, the Singapore Strait and the Malacca Strait will see unprecedented congestion,” he said.

According to Nestorovic, oil prices above US$100 per barrel would be a “direct tax on the competitiveness” of countries such as Vietnam and Thailand, which heavily depend on imported LNG and oil to power their manufacturing export machines.

The conflict poses a dilemma for Southeast Asia in more ways than one.

“For Muslim-majority nations like Indonesia and Malaysia, these conflicts are not just ‘foreign news’, they are deeply personal and religious. Southeast Asia has long benefited from being the ‘quiet’ part of Asia. That era is over,” he said.

“The region is now the ‘middleman’ caught between its energy dependence on the Middle East, its security dependence on the US and its geographic proximity to an assertive China.”

If the Middle East conflict drags on for four to six weeks, it would substantially damage major oil and natural gas infrastructure, which would strain importers in Asia and Europe, according to a Moody’s report.

Tighter supplies for such a long period could push oil prices above US$100 per barrel, similar to 2022 following Russia’s invasion of Ukraine, it said.

Benchmark Brent oil prices briefly breached US$100 per barrel earlier this week but have since pulled back after the International Energy Agency reportedly proposed the largest release of oil reserves in its history to bring down crude oil prices.

“I do not think that the impact on inflation will be that significant, and I worry more about the growth implications of the energy shock,” Lim said.

Analysts predict that central banks could increase interest rates in case oil prices shoot upwards – which, in addition to inflation, could increase manufacturing costs and affect industrial growth and expansion.

Lim warned that the Iran war could have a longer-term negative impact on Asia.

“Commodities ultimately do best when economic activity is strong, and if there is a global slowdown due to an energy shock, the medium-term effect on these economies is likely to be net negative, too,” he said.

Republished from _The South China Morning Post_, 11 March 2026