Asia braces for second wave of energy shock as Iran war strains global markets

BANGKOK — Asia is entering a more severe phase of energy disruption as the prolonged Iran war continues to choke supply routes and push economies across the region into deeper financial strain, according to analysts and international agencies.

The closure of the Strait of Hormuz, a vital passage for global oil and gas shipments, initially triggered emergency responses across Asia. Governments rushed to secure alternative supplies, ration energy use, and tap strategic reserves, assuming the crisis would be short-lived and energy flows would soon normalize.

That assumption has proven incorrect. With no clear end to the conflict, the initial buffer measures are weakening and a broader economic impact is now unfolding.

Airfares, shipping costs, and household utility bills are rising across multiple countries, placing pressure on growth forecasts and household budgets. The United Nations Development Programme estimates that up to 8.8 million people in the Asia-Pacific region could be pushed into poverty, with potential economic losses reaching $299 billion.

“The countries with the least resources to respond, or the consumers who can least afford to pay, are the ones who feel everything first,” said Samantha Gross of the Brookings Institution.

Before the conflict, Asian governments based fiscal planning on oil prices averaging around $70 per barrel. However, benchmark Brent crude surged to about $120 at its peak, forcing governments to either maintain costly subsidies or pass higher prices to consumers, a politically sensitive trade-off.

Ahmad Rafdi Endut, an independent energy analyst in Kuala Lumpur, said governments now face narrowing policy options as fuel costs strain public finances.

In India, authorities redirected fuel supplies toward household cooking gas, affecting fertilizer production. Rising fertilizer prices combined with climate concerns linked to El Niño conditions have raised alarms for agricultural output in the world’s largest rice exporter. Prime Minister Narendra Modi has urged citizens to reduce fuel consumption, including working from home and limiting travel.

In the Philippines, authorities implemented a four-day workweek to conserve fuel and expanded targeted subsidies for low-income households. However, Fitch Ratings reported that higher energy costs are already slowing business activity in urban centers such as Manila.

Thailand removed its diesel price cap less than a month after the conflict began after subsidy funds were exhausted, prompting budget adjustments elsewhere. Vietnam extended fuel tax relief measures but has still seen disruptions in aviation, including flight reductions linked to jet fuel shortages. Tourism, which accounts for nearly 8 percent of Vietnam’s economy, has been directly affected.

“Business is not good right now. There are already fewer tourists,” said Hanoi-based tour guide Nguyen Manh Thang.

Pakistan and Bangladesh, meanwhile, are increasingly exposed to volatile global energy markets as they purchase fuel at spot prices, placing additional pressure on foreign exchange reserves.

Experts warn that governments are approaching a fiscal crossroads: either maintain subsidies through borrowing and spending cuts elsewhere or withdraw support and risk inflation and public discontent. Endut described the situation as a potential “fiscal time bomb” once subsidy systems become unsustainable.

The economic consequences are expected to persist even after the conflict ends. Analysts note that energy supply chains will require time to recover, with infrastructure repairs, production restarts, and shipping delays likely extending disruptions for weeks or months.

Henning Gloystein of the Eurasia Group said Southeast Asia is currently experiencing the sharpest impact. “This fuel shortage situation is going to get worse,” he said.

Other regions are also feeling the pressure. Europe is expected to experience similar effects with a time lag, while the United States has seen rising fuel prices. In Africa and parts of Latin America and the Caribbean, higher import costs are widening fiscal deficits and slowing growth.

Beyond immediate economic strain, experts say the crisis underscores structural vulnerabilities in emerging economies. Maria Monica Wihardja of the ISEAS-Yusof Ishak Institute noted that parts of Asia’s growing middle class are now at risk of sliding back into poverty.

The Asian Development Bank said the prolonged conflict is reshaping regional economic planning and making geopolitical risk a central factor in growth projections.

“The longer it lasts, the larger those negative effects would be,” said ADB economist Albert Park.