Governments in Asia, the top oil importing region, are scrambling to find alternatives and insulate their economies from the worst of the energy crisis triggered by the Iran war, but the pain is getting increasingly costly.
The disruption spurred the Asian Development Bank to cut its growth forecast for developing Asia and the Pacific to 4.7% this year and 4.8% in 2027, down from 5.1% for both years previously, and lifted its inflation outlook to 5.2% for this year.
Overall oil imports to Asia, which takes 85% of Gulf crude shipments, plunged 30% in April on the year, to their lowest since October 2015, Kpler data shows, after two months of the near-closure of the Strait of Hormuz, a key chokepoint for a fifth of global oil and gas supplies.
Fiscal strains are mounting across the region, particularly South Asia, as governments spend billions of dollars on subsidies and import duty waivers to compensate.
“The first line of defence … 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 kept fuel prices steady despite surging crude costs, losing about 100 rupees ($1.06) a litre on diesel and 20 rupees on gasoline, but some analysts forecast price hikes after state polls ended in April.
Many regional governments have moved to limit fuel use or clamp down on hoarding, while several have curbed exports and many, including Australia, have espoused diplomatic efforts to ensure access.
China, the world’s biggest oil importer, has shielded itself with sizeable reserves, a diverse energy supply chain and export curbs on fuel and fertiliser, although Beijing is making exceptions for some regional buyers, from Australia to Myanmar.
Even as governments tap fiscal resources, forex reserves and oil inventories, the war’s economic impact on Asia has not been as bad as feared, Goldman Sachs said.
Nevertheless, it trimmed 2026 growth forecasts for Japan and some Southeast Asian countries and slightly lifted inflation expectations, while warning of a key unresolved question.
“How much of the resilience thus far reflects structural factors versus unsustainable declines in buffer stocks?” its analysts said in a note.
FIRST LINES OF DEFENCE
Asia’s emerging market currencies have fallen furthest and to lower lows against the dollar, compared with global peers and the region’s bigger currencies, with the peso , rupee and rupiah all making record lows.
Since the war started at the end of February, the Philippine peso has dropped more than 5%, the Thai baht and rupee more than 3% each and the rupiah more than 2.5%.
By contrast China’s yuan is the region’s top performer, up 0.8% against the dollar, while Japan has intervened to push up the yen , to stand 0.4% higher than pre-war levels. South Korea’s won is down about 1.1%.
The South Asian economies of Pakistan, Bangladesh and Sri Lanka are the most vulnerable to the burdens triggered by the crunch, S&P Global Market Intelligence said.
Pakistan, for example, recently issued its first tenders since 2023 to buy liquefied natural gas.
It is looking to replace supply it is unable to source from Qatar, paying $18.88 per million British thermal unit for one cargo, or roughly $30 million more than market prices before the war, according to Reuters calculations.
“These countries use more of their resources on subsidising domestic public energy enterprises and basically shielding the final consumers from the energy price shock,” added Luchnikava-Schorsch, the S&P unit’s head of Asia-Pacific Economics.
“These are also the countries which have the slimmest fiscal buffers.”
Still, regional economies are better positioned than when the start of the Ukraine war in 2022 triggered the last energy shock, she said.
