Doha, Qatar: Qatar National Bank (QNB) has projected that the repercussions of the military escalation between the United States and Iran on fiscal positions, foreign exchange reserves and food security will persist well beyond the end of the crisis for most frontier and emerging Asian economies.
In its weekly report, the bank said Asian central banks face the difficult task of balancing support for slowing economic growth with efforts to contain mounting inflationary pressures.
QNB noted that Asia's energy crisis will not end simply with the signing of an agreement between the United States and Iran, but only when regional supply chains, strategic reserves and price levels have fully returned to normal.
The report said the military escalation between the United States and Iran triggered one of the largest disruptions to global energy supplies in history following the closure of the Strait of Hormuz, interrupting around one-fifth of global oil and liquefied natural gas (LNG) trade flows.
As a result, Brent crude prices surged to a peak of USD 118 per barrel before falling to below USD 80 per barrel in mid-June as ceasefire signals emerged, while global oil inventories continued to decline at a rapid pace.
Asia is among the regions most exposed to the disruption, with around 80% of its crude oil imports and 90% of its LNG imports normally passing through the strategic waterway.
The report reviewed the emergency measures adopted by governments across Asia, describing them as unprecedented since the COVID-19 pandemic.
These included fuel rationing, four-day work weeks, the restart of coal-fired power plants and record withdrawals from strategic petroleum reserves, raising concerns over persistent inflationary pressures across the region.
QNB examined the impact of the escalation on both advanced and emerging Asian economies, noting that drawdowns from strategic petroleum reserves have provided the first line of defense against the supply shock.
The report said Japan and South Korea, which typically source 95% and 70% of their oil imports from the Middle East, respectively, maintain strategic reserves equivalent to about 30 weeks of supply.
China, meanwhile, despite being the world's largest crude oil importer, continues to have access to Iranian and Russian energy supplies through routes that bypass the Strait of Hormuz and can rely on domestic coal for electricity generation.
QNB said most other Asian economies have far fewer policy options than China.
It noted that India, Vietnam, Singapore, Bangladesh, Pakistan and Sri Lanka hold strategic reserves sufficient for only 30 to 90 days, leaving them more vulnerable to supply disruptions due to limited foreign exchange reserves and constrained fiscal space, which reduce their ability to absorb external shocks.
According to the report, the inflationary impact of the energy shock is being transmitted through three main channels simultaneously.
The first, and most immediate, is the direct pass-through of higher oil and gas prices to fuel, electricity and transportation costs, reflected in higher container shipping rates, petrol queues, increased electricity tariffs and airline fuel surcharges across the region.
The second channel operates through food and fertilizer prices. Disruptions to petrochemical supply chains have reduced the availability of LNG-derived fertilizer feedstocks, driving up agricultural input costs and threatening food security across South and Southeast Asia.
The third channel stems from currency depreciation. Rising energy import bills have weakened trade balances and accelerated capital outflows, putting downward pressure on Asian currencies against the US dollar and driving import-price inflation beyond the direct impact of higher energy costs.
The report said these three channels are reinforcing one another, intensifying inflationary pressures across the region, where inflation is projected to reach 5.2% this year, up from 3.0% last year.
In its concluding assessment, QNB said the announcement of an agreement between the United States and Iran offers grounds for cautious optimism, but stressed that even a swift resolution would not immediately restore price stability or normalize energy supplies.
The bank expects production and trade patterns across Asia to return to pre-escalation levels only by early next year, noting that clearing mines, restoring logistics through the Strait of Hormuz and restarting idled production facilities could require months of sustained effort. (
