Asia Bears the Brunt of the US-Iran War

The US-Iran war has triggered a live economic shock across Asia, with energy and food pressures building simultaneously.

Energy Supply

• Asia imports approximately 85% of its oil from the Middle East, leaving it vastly exposed to the current Hormuz closure and Gulf conflict.
• Regional oil imports fell 30% year-on-year in April, whilst US and Russian supply increases have not been sufficient to close the gap.
• The Asian Development Bank has revised Asia-Pacific 2026 growth down to 4.7% (from 5.1%) and lifted its inflation outlook to 5.2%.

Policy Response

• Governments across the region, particularly in South Asia, are depending on fiscal resources to fund subsidies and import duty waivers, putting public finances under growing strain.
• Wealthier economies like China and Japan are drawing on strategic reserves as a buffer; poorer Southeast Asian nations have fewer options and are already implementing austerity measures and rationing.
• Short-term relief tools such as subsidies, reserve releases, and work-from-home policies are unsustainable if the disruption persists.

Food & Humanitarian

• The effects are also evident in agriculture, as many countries in the region import large quantities of fertiliser from the Persian Gulf.
• Within weeks of the war starting, the price of urea, the world’s most common nitrogen fertiliser, had jumped more than 40%.
• The UN World Food Programme estimates that the combined fallout from the Middle East conflict could push 45 million additional people into acute hunger in 2026.

“Asia entered 2026 on a strong footing. However, the war in the Middle East and the ensuing energy supply shock are raising inflation, weakening external balances, and narrowing policy options, underscoring the region’s dependence on imported oil and gas.”  Andrea Pescatori, IMF Economist

Outlook

• If the conflict drags on, a decline in consumption will have negative economic impacts.
• Goldman Sachs and the IMF have both flagged downside risks; much of the resilience seen so far may simply be reserves being spent down, not a sign of underlying economic strength.

Bottom Line: 

• The Gulf conflict has moved from a feared risk to an increasing economic strain for Asia.
•  Energy and food price pressures are building simultaneously, policy buffers are being spent down, and the growth outlook is deteriorating. 
• The longer the disruption persists, the harder it becomes to achieve a soft landing.

The impact on Asia is currently being monitored by the commodities team and an in-depth research note will follow.