Asia’s energy security is under increasing strain as the war in Iran drags on, pushing fuel prices higher and exacerbating supply shortages. The closure of the Strait of Hormuz, a vital route for oil exports, has intensified the energy crisis.
Governments have implemented emergency measures to address the immediate challenges, including diverting energy supplies to essential sectors like cooking gas, but the war’s prolonged nature is exacerbating the situation, according to AP.
The United Nations Development Programme (UNDP) estimates that the conflict could push 8.8 million people into poverty and cause a $299 billion loss to the Asia-Pacific economy.
Airfare costs, shipping rates, and utility bills have surged, threatening economic growth across the region. Countries, particularly those with fewer resources, are facing the brunt of these impacts.
Asia’s governments had initially budgeted for oil prices around $70 per barrel, but the war has pushed Brent crude to nearly $120. This has left governments with a difficult choice: maintain expensive fuel subsidies, straining public finances, or cut subsidies, which could spark public outrage.
Ahmad Rafdi Endut, an energy analyst based in Kuala Lumpur, warned that this fiscal dilemma could lead to long-term economic instability.
In India, the diversion of fuel for household gas supplies has reduced availability for fertilizer plants, with the country’s agricultural sector already grappling with an El Niño-driven drought. India has long shielded its population from the rising costs through subsidies, but Prime Minister Narendra Modi recently urged citizens to reduce fuel consumption and buy locally.
The Philippines has taken similar steps, introducing a four-day workweek and targeted subsidies for the most vulnerable.
However, higher fuel prices continue to slow business activity in urban areas, particularly Manila. In Thailand, the government abandoned its diesel price cap within a month of the conflict beginning, prompting other spending cuts to manage rising energy costs.
Vietnam, meanwhile, has been forced to suspend fuel taxes and has witnessed a decline in tourism, a sector that constitutes nearly 8% of its GDP.
The suspension of fuel taxes has failed to halt the rise in prices, while the scarcity of jet fuel has led to reduced flight schedules, compounding economic stress.
For countries like Bangladesh and Pakistan, buying oil on the open market has added volatility to energy prices, increasing import costs and putting pressure on already fragile foreign exchange reserves.
“This fiscal time bomb,” as Endut described it, could destabilise public finances further if subsidies are drained or inflation rises unchecked.
As the war shows no sign of ending soon, relief seems distant. The global oil trade will take time to recover, as damaged infrastructure and logistical challenges in the Middle East hinder the resumption of oil production and transportation.
Henning Gloystein from Eurasia Group warns that Southeast Asia, in particular, remains the most severely affected region.
Longer-term solutions, such as diversifying fossil fuel suppliers and investing in renewable energy, are being considered by governments across the region. However, the geopolitical risks highlighted by the conflict will continue to cast a shadow over Asia’s economic future.
Albert Park of the Asian Development Bank emphasised that the longer the conflict lasts, the more severe the negative effects on regional growth will become.
