Overview
An Iran‑driven energy shock is rippling through Asia’s energy and logistics networks. As the US‑Israel conflict in Iran enters its second month with no clear end in sight, Asia’s reliance on imported fuel and Middle Eastern maritime trade routes is exposing the fragility of its supply chains despite years of diversification efforts. Governments are scrambling to contain immediate disruptions with stopgap measures to stabilize domestic markets, including protectionist and opportunistic measures by some. The risk of Asia plunging into its next economic downturn, or a far worse crisis, looms large. Asia’s energy and supply chain vulnerabilities, however, open new avenues for investment as governments and businesses race to build more resilient infrastructure.
The Asia Crisis at Hand
The war in Iran has triggered the most severe oil shock in decades, rippling across the global economy, and Asian economies have been hit hardest due to their heavy dependence on Middle Eastern energy transiting the Strait of Hormuz. Asia is the world’s fastest‑growing region for oil demand, but domestic production declines from aging fields and limited new discoveries have pushed the region to increasingly rely on energy imports. About 80% of all crude oil and refined products and 90% of LNG from the Strait are bound for Asia. Several South Asian economies import nearly two‑thirds of their total LNG supplies from this route; Japan sources 95% of its oil and South Korea 70% from the Middle East; and parts of Southeast Asia rely on the region for up to 70% of their crude oil and all of their gas.
The Strait’s effective closure has cut off these flows to Asia. This crisis is exacerbated by the region’s limited energy stockpiles—major Southeast Asian economies such as Indonesia hold only 21 to 23 days’ worth of fuel reserves. Many countries are now scrambling to secure equivalent supplies—a challenge because many Asian refineries are configured for Gulf crude—even at inflated prices. Climbing Brent crude prices have skyrocketed fuel prices across Asia, including the Philippines, which witnessed petrol prices jumping more than 50% and diesel prices doubling. This prompted President Ferdinand Marcos Jr. to declare a year-long national energy emergency, making the Philippines the first country to do so amid the war in Iran.
Beyond energy cut-offs, Asia is facing reduced shipments of fertilizer. About one‑third of global seaborne fertilizer passes through the Strait, with Gulf Arab countries supplying the vast majority of critical inputs used in fertilizer production. Farmers in South and Southeast Asia are particularly vulnerable, as more than half of their agricultural fertilizer is nitrogen‑based. Even among Asian fertilizer producers, such as India, Pakistan, and Thailand, rising natural gas prices have increased costs, forcing producers to slow or halt operations. Prolonged shortages would have cascading consequences for a sector already grappling with climate‑related shocks, including reduced yields, crop failures, food price spikes, and tighter food supplies. With 40% of South Asia’s and 27% of Southeast Asia’s labor force employed in farming and related sectors, disrupted supply chains and elevated energy costs pose serious threats to millions of livelihoods.
These disruptions have extended beyond physical supply chains, with financial markets across Asia experiencing rising capital outflows and currency pressure. Heading into 2026, investor sentiment toward Asian equities had been improving, with global funds redeploying capital into the region’s relatively strong growth sectors while also seeking diversification away from mounting fiscal risks in the US. The outbreak of war in Iran, however, quickly reversed that momentum. From the onset of the war to March 26, roughly $52 billion has flowed out of import-dependent Asian emerging market equities, driven in part by concern that many of these economies will remain constrained by the conflict and its fallout. Taiwan has borne the brunt of the selloff, with more than $27 billion in March outflows, followed by South Korea and India, particularly in tech and AI stocks. Asian stocks remain volatile, jumping today following reports that US President Trump may end the war in Iran without reopening the Strait of Hormuz, but investor caution over the war’s unfolding could prolong market swings in the days ahead.
Meanwhile, investors are rapidly shifting capital into US assets, pushing the dollar to its highest value against Asian currencies in 20 years. The South Korean won hit its weakest exchange rate against the dollar since 2008, and the Indian rupee has posted its steepest decline in a decade. At a time when many of these energy-import-reliant governments require greater capital to cushion rising import costs the most, Asia’s purchasing power is crippling. The simultaneous pressure of capital flight and currency depreciation, coupled with sustained rises in energy costs, could significantly slow growth across Asia’s import-dependent economies, raising the risk of recession in parts of the region.
Stopgap Solutions, Opportunists, and Protectionists
Governments across Asia are moving quickly to blunt the immediate impact and prevent shortages from destabilizing key sectors. Authorities have rolled out a range of COVID-era–style energy conservation measures to safeguard stockpiles, including work-from-home orders, temporary school closures, rationed fuel allowances, and even shorter shower recommendations. To control inflation and ease the cost of living, many countries, including oil-producing nations with a little more cushioning from shocks, have introduced fuel price caps and consumer subsidies. However, with oil prices still climbing, these governments have imposed quotas to rein in ballooning subsidy costs, such as Kuala Lumpur, which saw its monthly fuel subsidy obligations jump from $174 million to $797 million.
Some countries are turning back to coal in an effort to reduce their reliance on energy imports from the Middle East. Although coal remains a part of many Asian economies’ energy mix, governments have increasingly sought to cut its use by retiring aging plants and promoting LNG as a relatively cleaner alternative. Nevertheless, the search for alternative energy sources has led South Korea and Japan to lift caps on coal power generation, prompted Thailand to restart two previously decommissioned coal plants, and encouraged other South and Southeast Asian nations to lean more heavily on coal. While coal alone cannot fully offset energy imports from the Middle East, it offers these economies a degree of insulation against supply disruptions.
The pressure on energy supplies is also beginning to shape how countries interact with one another, prompting a mix of opportunistic sourcing and protectionist measures across the region. While Asian economies look to regional oil exporters like Singapore, India, and Malaysia to make up for supply shortfalls, governments are also increasingly turning to opportunistic purchases of Russian crude oil. This follows a 30-day US sanctions waiver allowing Russian oil already at sea to be traded, triggering a scramble among Asian importers to compete for the estimated 126 million barrels still at sea. India moved quickly, ramping up purchases to roughly 1.9 million barrels per day—nearly double its pre-conflict levels—but with demand now surging across Southeast Asia, competition for limited supplies is building. Moscow has signaled it will prioritize LNG shipments to Asian buyers over “unfriendly” countries, including G7 members. In this period of acute supply stress, Asia’s immediate energy demands override long-standing geopolitical considerations.
In parallel, several governments are imposing fuel export restrictions to preserve domestic supply. At the beginning of March, Thailand banned fuel exports to maintain its 60-day strategic oil reserve, with limited shipments to Lao PDR and Myanmar. Similarly, on March 11, Beijing issued an immediate ban on gasoline, diesel, and aviation fuel exports, including cargo still awaiting customs clearance. This followed earlier restrictions directing refiners to halt new export agreements and cancel committed shipments. China has been largely insulated from the immediate oil shocks of the Iran war because of its longstanding management of its Strategic Petroleum Reserve.
Despite being the world’s second-largest fertilizer exporter and a major fuel supplier, Beijing has signaled these bans will continue into April, possibly allowing limited shipments to Bangladesh, Myanmar, Vietnam, the Maldives, and Sri Lanka. This would be in line with its strategy of imposing broad curbs before selectively allowing trade once domestic needs are assured. These restrictions have tightened supply for import-dependent nations, even as they repeatedly call on China to honor regional energy security pledges. Taken together, these moves highlight growing fragmentation in Asia’s energy markets between supply scramblers and supply safeguarders.
Risk and Resilience Building
While these measures help governments weather immediate shocks, they do not address the structural vulnerabilities that left Asian economies so exposed. Many of the temporary energy conservation strategies, for instance, risk dampening economic activity if not carefully managed. A recent Asian Development Bank report has already warned that developing countries in the region could face up to a 1.3% drop in economic growth and a 3.2% rise in inflation if the war lasts a year. Thus, these war-induced disruptions stand as a catalyst for Asia to rebuild its resilience to global shocks and build out domestic infrastructure. Policy discussions and investment plans geared to expand strategic reserves and strengthen supply chain resilience are accelerating, opening ample opportunities for firms in infrastructure and logistics.
To address import dependence, governments are poised to advance investments in low-carbon, resilient energy sources. In Southeast Asia, the ASEAN Power Grid aims to integrate renewable and non-renewable energy sources across member states into a cross-border power system—reducing costs and improving energy security, laying the groundwork for more resilient economies. Nuclear energy is also re-emerging on the agenda, with several countries signaling plans to restart decommissioned plants or start new projects. This opens opportunities for reactor construction and related supply chains. However, momentum for clean energy infrastructure could narrow if prolonged shocks from the war in Iran push more countries to revert to or entrench coal dependence. Industries tied to critical minerals, renewables, and agribusiness stand to gain from shifting trade flows and the push for self-sufficiency in key inputs.
The disruption presents upside potential for secondary logistics hubs. Alongside Oman, Pakistan has emerged as a key transshipment alternative as Gulf routes face interruptions. Leveraging proximity to major Gulf ports, Islamabad has introduced a 60% discount on port charges, making Karachi an attractive rerouting option. In just 24 days since the onset of the Iran war, Karachi handled more cargo than in the entire year of 2025. As traders seek corridors resilient to geopolitical shocks, demand will rise for port and storage facilities infrastructure development, creating opportunities for construction, engineering, and logistics firms.
