Asia bears brunt of energy shock as Middle East war disrupts liquid flows
Asia is facing a dual energy crisis marked by both soaring prices and physical supply disruptions as escalating war in the Middle East constrains flows through the Strait of Hormuz, according to a new report by Morningstar DBRS.
The report highlights that roughly one-fifth of global crude oil and LNG supply has been affected by disruptions at the critical chokepoint, with Asia absorbing the majority of the impact due to its heavy dependence on imported hydrocarbons. About 83% of oil and LNG shipments passing through Hormuz are destined for Asian markets, amplifying the region’s exposure.
Asia’s structural reliance on Middle Eastern energy imports has intensified the shock. Countries such as Japan and South Korea import nearly all of their energy needs, while China and India depend heavily on foreign supplies, much of it sourced from the Gulf.
This dependence, combined with limited alternative shipping routes, has turned what initially appeared to be a price-driven shock into a broader supply and logistics crisis. Governments across the region have begun implementing emergency measures, including fuel rationing, price controls, and strategic reserve releases, to manage shortages and rising costs.
Policy responses vary
In North Asia, policymakers are leveraging stronger buffers. Japan has tapped strategic oil reserves and introduced subsidies to cushion consumers, while South Korea is relying on LNG stockpiles and fuel-switching capabilities. China has deployed administrative controls to stabilize domestic fuel prices and restrict refined product exports.
By contrast, parts of South and Southeast Asia are more vulnerable. India has introduced tax relief and prioritized gas allocation, while countries such as the Philippines and Vietnam have declared energy emergencies and rolled out conservation measures. Several ASEAN (the Association of Southeast Asian Nations) economies have even implemented partial work-from-home policies to curb fuel consumption.
Broader economic spillovers intensify
Beyond energy markets, the disruption is rippling through supply chains. According to Morningstar DBRS, rising costs for freight, fertilizers, petrochemicals, and industrial gases are beginning to weigh on manufacturing, agriculture, and food processing sectors.
In North Asia, shortages of specialized inputs such as helium are adding pressure to semiconductor and electronics supply chains. In Southeast Asia, refinery disruptions and power risks threaten export-oriented industries, while higher transport and food costs are feeding inflation.
The energy shock is likely to slow economic growth across Asia while increasing inflationary pressures and tightening financial conditions. The magnitude of the impact will depend on how long the disruption persists and how effectively governments manage the crisis.
While some countries have policy space and reserves to absorb the shock, others face mounting risks from weaker external balances, rising subsidy burdens, and potential production bottlenecks if supply constraints persist, according to Morningstar DBRS.