Weeks after the outbreak of the Iran war, the emergency short-term energy mitigation measures that Asian governments rolled out to counter sudden supply shocks are already running out of steam, and a far more damaging second wave of economic fallout is now spreading across the region, according to analysts and official data.
When the conflict first disrupted shipping through the Strait of Hormuz, the world’s most critical energy chokepoint that carries roughly a third of global seaborne oil to Asian markets, regional capitals moved quickly to contain the damage. Emergency policies included mandatory energy conservation, reallocating limited natural gas supplies away from industrial uses to prioritize household needs, and drawing down strategic petroleum reserves to temporarily bridge supply gaps. But all these interventions were designed under the core assumption that the conflict would be short-lived, allowing energy shipments through the strait to quickly resume. That optimistic scenario has yet to materialize.
With no diplomatic or military resolution in sight, the fuel crisis is now rippling through every corner of regional economies. Airfares, maritime shipping costs and household utility bills are climbing sharply, eroding consumer purchasing power and putting already fragile post-pandemic growth at risk. The United Nations Development Programme estimates that as many as 8.8 million people across the Asia-Pacific could be pushed into extreme poverty by the conflict, which could cause a total of $299 billion in cumulative economic losses across the region.
“The countries with the weakest capacity to respond, and the low-income consumers who can least absorb extra costs, are the first to bear the brunt of this crisis,” explained Samantha Gross, a energy security expert at the Washington-based Brookings Institution.
Most Asian nations drafted their 202X national budgets based on a forecast that Brent crude would average roughly $70 per barrel, with widespread fuel subsidies put in place to keep consumer prices stable. The conflict has sent benchmark crude soaring to peaks near $120 per barrel, creating an intractable fiscal dilemma for governments across the region.
As Ahmad Rafdi Endut, an independent energy analyst based in Kuala Lumpur, puts it: Governments are forced to choose between two unappealing options. Either maintain expensive subsidies that will rapidly drain public finances, or roll back those support measures and pass steep price increases on to households, which carries major risk of public unrest.
Case studies across the region illustrate how deep the crisis has become. In India, the world’s top rice exporter, early policy decisions to redirect fuel supplies to prioritize cooking gas access for 330 million low-income households have left fertilizer manufacturers with insufficient feedstock. Combined with already sky-high fertilizer prices and forecasts for weak monsoon rains amid an El Niño event, the disruption poses a major threat to the nation’s agricultural sector and food security. To date, New Delhi has relied on broad energy subsidies to shield its 1.4 billion people from price hikes, but Prime Minister Narendra Modi recently called on citizens to cut back on international travel, work from home where possible, shift to public transport, and reduce fertilizer use to conserve energy and preserve foreign currency reserves.
The Philippines introduced a four-day workweek to cut national fuel consumption and rolled out targeted subsidies for low-income households, but credit rating agency Fitch Ratings notes that most consumers still face far higher energy costs, which has already slowed business activity in major urban centers like Manila. Thailand was forced to scrap its diesel price cap less than a month after the conflict began when its subsidy budget ran out, and is now cutting spending on other public programs to offset higher oil costs while trying to keep its deficit under control. Vietnam extended a suspension of fuel taxes to cap domestic prices, but jet fuel shortages have forced airlines to cut the number of flights, hitting a tourism sector that makes up nearly 8% of the nation’s gross domestic product. “Business is not good right now. There are already fewer tourists,” said Nguyen Manh Thang, a tour guide based in Hanoi.
For lower-income, cash-strapped economies like Pakistan and Bangladesh, the crisis is even more severe. Both nations have been forced to purchase spot market oil and gas at current inflated, volatile prices instead of locking in lower rates through long-term supply contracts, sending import costs soaring and putting massive additional pressure on their already depleted foreign exchange reserves.
Endut warns that once existing subsidy budgets are exhausted and inflation begins to accelerate, many regional economies could face what he calls a “fiscal time bomb” that threatens both fiscal stability and social order.
Experts emphasize that even when the conflict eventually ends, Asian economies will not see immediate relief. Samantha Gross of Brookings notes that global oil and gas trade will not bounce back overnight. Restarting idled production capacity, repairing any damaged energy infrastructure, and organizing new shipments from the Middle East to Asian end markets will take weeks, if not months, to complete.
While Europe will face a similar wave of disruption, analysts say it will arrive roughly four weeks behind the impact hitting Asia. U.S. consumers are also feeling the strain of spiking gasoline prices, but Henning Gloystein, a senior analyst at the Eurasia Group consultancy, says Southeast Asia is currently the “biggest pain point” of the global energy crisis. “This fuel shortage situation is going to get worse before it gets better,” he warned.
The spillover extends far beyond Asia: higher energy and import costs are straining government budgets, widening fiscal deficits and driving up inflation across Africa, while growth projections have already been downgraded for Latin America and the Caribbean due to the ongoing disruptions. Ted Krantz, CEO of global supply chain risk management firm Interos.ai, warns that the complex overlapping disruptions to global supply chains will continue to create broader economic headwinds for months to come.
The crisis has also laid bare the fragility of Asia’s fast-growing middle class, according to Maria Monica Wihardja, a fellow at the ISEAS-Yusof Ishak Institute based in Singapore. Millions of people who recently moved out of poverty now face the risk of sliding back into lower income brackets, and the energy shock will reshape Southeast Asian economies for years to come, altering labor market dynamics and long-term energy planning.
In response to the crisis, regional governments have already begun debating and implementing long-term structural adjustments, including diversifying fossil fuel supply sources, scaling up nuclear energy development, and accelerating the deployment of renewable energy sources like solar power.
Albert Park, chief economist at the Asian Development Bank, notes that the conflict has pushed geopolitical risk to the center of Southeast Asia’s economic outlook, and is already directly slowing regional growth. “The longer it lasts, the larger those negative effects would be,” he said.