Asia battles rising, uneven toll of energy crisis caused by Iran war

Governments in the leading oil-importing region, Asia, are rushing to look for alternatives and shield their economies from the brunt of the energy crisis caused by the conflict in Iran, but the effects continue to take an increasingly heavy toll.

The impact pushed the Asian Development Bank to lower its economic growth projection for developing Asia and the Pacific to 4.7% this year and 4.8% next year, down from 5.1% for each year respectively, while raising its inflation prediction to 5.2% this year.

Oil imports into Asia, which consumes 85% of Middle Eastern crude exports, fell by 30% during April compared to a year earlier, hitting their lowest level since October 2015, according to data from Kpler, following two months of almost shutting down the Strait of Hormuz, a crucial bottleneck for one-fifth of world oil and gas flows.

Fiscal pressures have been growing across the region, especially South Asia, owing to the enormous amount of money spent by governments in subsidies and exemptions of import duties.

Fuel price shocks have been softened by governments through subsidies or reduced fuel taxes, according to S&P Global analyst Hanna Luchnikava-Schorsch.

In India, state-run refiners have kept prices stable despite rising crude costs, absorbing losses, though increases are expected after recent elections. Across the region, governments are restricting fuel use, curbing hoarding and exports, and pursuing diplomatic measures to secure supplies.

China has relied on large reserves, a diversified energy network, and export controls to manage the impact, while still allowing limited supplies to select regional partners.