As the conflict in Iran Escalates, nations across Asia are grappling with significant energy supply disruptions, prompting governments to take drastic measures to protect their populations. India's government has redirected liquefied gas supplies to households, prioritizing domestic cooking fuel over industrial uses. Nepal has instituted gas rationing, while the Philippines has shortened its workweek, and Bangladesh has closed universities to cope with the fallout from Iran's closure of the Strait of Hormuz.
Energy Import Dependencies in Asia
Many Asian economies rely heavily on energy imports, with over a third of their energy needs sourced from abroad. South Korea imports approximately 80% of its energy, Japan even more at 90%, and Thailand at 55%. The significance of the Strait of Hormuz cannot be understated; according to the International Energy Agency, around 80% of oil and oil products transiting through the strait in 2025 were destined for Asian markets. Originally reported by The Guardian.
However, with the ongoing conflict, traffic through this vital waterway has plummeted by 90%. Such a dramatic reduction has led to soaring energy prices, compounding the economic strain on nations that are already vulnerable. While Europe has managed to lessen its dependency on Middle Eastern oil, it still faces a surge in natural gas prices since the onset of the US and Israeli bombardments in Iran, leading to a downturn in equity markets.
Impact on Global Stock Markets
The repercussions of the conflict are becoming evident in the global financial landscape. By March 20, the MSCI index of European stocks had dropped about 11% since the start of the war, surpassing the 9% decline seen in the MSCI Asia index. Meanwhile, the S&P 500 index in the United States has witnessed a relatively modest drop of 5% since the conflict began. This resilience reflects the strength of the US economy, bolstered by its domestic natural gas production, which meets about 36% of its energy needs.
However, this situation paints a troubling picture of the broader world economy. The United States, once viewed as the guardian of a stable global order, is now perceived as a source of chaos, exacerbating tensions among allies and adversaries alike. The tariffs introduced by former President Donald Trump in April last year, which were intended to bolster the US economy, have begun to show their adverse effects. Economists outside Trump's administration have concluded that American consumers and businesses bear the brunt of these tariffs.
Global Economic Forecasts Deteriorate
The International Monetary Fund (IMF) has revised its growth forecasts, indicating that while the US economy has largely remained unscathed, many other nations are facing declining growth prospects. In January, just before the bombing in Iran commenced, the IMF projected a 2.4% GDP growth for the US this year-0.4 percentage points higher than its previous forecast in October 2024. In contrast, the outlook for economic growth in major economies like Britain, Japan, Canada, India, the euro area, and Latin America has weakened significantly since Trump took office.
Further complications are looming. The World Trade Organization (WTO) has assessed the damage caused by the ongoing conflict, warning that if energy prices remain high, merchandise trade growth could decelerate from 1.9% to 1.5%. North American export growth is expected to slow from 1.4% to 1.1%, while Europe may see its exports shrink by 0.6% instead of expanding by 0.5%. The impact on economic growth will be uneven, with North America potentially benefiting from high energy prices and Asia facing a slowdown.
Consequences for Agriculture and Remittances
The conflict's impact extends beyond energy and trade, affecting food security in countries like Brazil and India, where 70% and 40% of urea imports, crucial for agriculture, come from the Gulf. Additionally, Gulf nations depend heavily on imports for food, with 75% of their rice and over 90% of their corn and vegetable oil sourced from the region.
Moreover, countries such as Bangladesh, India, and Pakistan are likely to experience a sharp decline in remittances from millions of their citizens working in Gulf nations, where the war has already begun to disrupt regional economies. Ironically, while some environmental advocates hope for a shift towards renewable energy due to the conflict, the immediate consequence has been a renewed interest in coal as countries scramble to secure energy supplies.
As the situation in Iran continues to unfold, the repercussions of this conflict will likely reverberate through the global economy, reshaping alliances and economic strategies for years to come.
Originally reported by The Guardian. View original.