Asia braces for a second wave of energy shocks from the Iran war
[May 11, 2026] By
ANTON L. DELGADO and ANIRUDDHA GHOSAL
BANGKOK (AP) — Asia’s first defenses against energy shocks from the Iran
war are running short and a more consequential second wave of impacts is
beginning to hit.
When the war started, governments scrambled to adapt to the closure of
the Strait of Hormuz, a critical artery for energy flowing to Asia. They
made difficult trade-offs: saving power at the risk of slowing
businesses, prioritizing gas for households at the risk of fertilizer
production and dipping into energy stockpiles for temporary relief.
But these measures were based on the war lasting only a short time,
allowing a quick resumption of energy flows. That has not happened.
With no clear end in sight, the fuel crisis is now rippling across
economies. Airfare costs, shipping rates and utility bills are climbing,
jeopardizing economic growth. About 8.8 million people are in danger of
being pushed into poverty and the conflict may cause $299 billion in
economic losses to the Asia-Pacific region, according to the United
Nations Development Program.
“The countries with the least resources to respond, or the consumers who
can least afford to pay, are the ones who feel everything first,” said
Samantha Gross of the U.S.-based think tank Brookings Institution.
Asian governments planned their budgets assuming the price of oil would
average around $70 a barrel. Subsidies helped to keep fuel prices
stable. But the war pushed the price of Brent crude to as high as about
$120 a barrel.
Governments now face a stark choice between maintaining those costly
subsidies, straining public finances, or cutting them to pass higher
costs on to consumers, risking a public backlash, said Ahmad Rafdi Endut,
a Kuala Lumpur-based independent energyanalyst.
Asia braces for a second wave of impacts
In India, early steps to redirect fuel supplies toward cooking gas for
roughly 330 million households cut into supplies for fertilizer plants.
The surging of fertilizer prices and meteorologists warning of weak
rainfall in an El Niño year is a concern for the world’s largest rice
exporter.
India has relied on subsidies to shield its 1.4 billion people until
now, but on Sunday, Prime Minister Narendra Modi urged citizens to buy
locally and cut down on travel abroad to save dollars. He also
encouraged people to work from home and use public transport to reduce
fuel consumption, and asked farmers to halve fertilizer use.
The Philippines quickly shifted to a four-day work week to save fuel. It
also rolled out targeted subsidies for poorer households. However, Fitch
Ratings noted that most consumers are still paying higher energy costs,
causing business activity to slow in major cities like Manila.
Thailand abandoned its diesel price cap less than a month after the
conflict began, as its fuel subsidies ran out. It's now cutting other
spending to manage higher oil prices while trying to keep its budget
under control.
Vietnam extended a suspension of fuel taxes to ease pressure on domestic
prices. Jet fuel shortages have led to flight cuts. Tourism makes up
nearly 8% of Vietnam's gross domestic product — the nation's total
output of goods and services — so that affects the entire economy.
“Business is not good right now," said Hanoi-based tour guide Nguyen
Manh Thang. “There are already fewer tourists.”
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Gasoline drops from the nozzle of a fuel pump as it fills a
motorcycle as prices continue to rise at a gasoline station in
Quezon City, Philippines on March 19, 2026. (AP Photo/Aaron Favila,
File)
 Fuel shortages have pushed
cash-strapped countries like Pakistan and Bangladesh to buy oil and
gas at current market prices, which are often higher and more
volatile than long-term contracts. This raises import costs and adds
to pressure on their already limited foreign exchange reserves.
Governments can keep costly fuel subsidies by cutting spending from
other priorities like welfare, or borrow more and risk higher
inflation, said Endut in Kuala Lumpur. Alternatively, they can
reduce subsidies and pass higher costs on to consumers, risking
angering voters.
Once subsidies are exhausted and inflation starts to rise, countries
could face what he called a “fiscal time bomb.”
Vulnerable Asia will not see immediate relief
The war's eventual end won't bring quick respite to Asia.
The global oil and gas trade will not bounce back right away, and it
will take time to restart production, said Gross with the Brookings
Institution. Repairing damaged infrastructure, restarting facilities
and allowing for transport time from the Middle East to final
markets will take weeks or even months.
Europe will feel a similar impact to Asia, but with about a
four-week lag, experts say.
Americans are also feeling the pinch as gas prices spike across the
U.S. But Southeast Asia is currently the “biggest pain point," said
Henning Gloystein of the Eurasia Group consultancy firm.
“This fuel shortage situation is going to get worse,” he said.
In Africa, higher energy and import costs are similarly straining
budgets, widening deficits and driving up inflation. The war is also
taking a toll on Latin America and the Caribbean, where growth is
projected to slow slightly.
The complex disruptions across global supply chains will continue to
have broader impacts, warned Ted Krantz, CEO of supply chain risk
firm Interos.ai.
The crisis also highlights the fragility of Asia’s growing middle
class, said Maria Monica Wihardja of the Singapore-based ISEAS-Yusof
Ishak Institute, with many people at risk of slipping back into
poverty.
The energy shock will reshape Southeast Asia’s economies over time,
she said, including shifts in job markets and how countries plan for
future energy crises.
Countries are already debating and implementing longer-term
solutions, like diversifying fossil fuel suppliers, developing
nuclear energy and renewables like solar.
The war is making geopolitical risk central to the economic outlook
of Southeast Asia and directly slowing regional growth, said Albert
Park of the Asian Development Bank.
"The longer it lasts, the larger those negative effects would be,”
he said
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Ghosal reported from Hanoi, Vietnam.
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