Hong Kong, Mar 2: Asia’s heavy dependence on imported oil and gas leaves the region exposed to economic shocks following U.S.-Israel strikes on Iran, with higher crude prices likely to slow growth and stoke inflation, according to a report by Morgan Stanley.
The U.S. and Israel launched strikes on Iran over its nuclear programme, prompting retaliatory attacks by Tehran on American military assets in Gulf states. The escalation has heightened fears of disruption to oil shipments through the Strait of Hormuz, a critical global energy corridor.
“Asia remains most dependent on oil and gas imports,” Morgan Stanley said in a research note led by its chief Asia economist Chetan Ahya.
The investment bank said Asia’s oil and gas trade deficit stands at 2.1 per cent of GDP, underscoring its vulnerability to price volatility.
It estimated that every sustained USD 10 per barrel rise in oil prices would directly reduce Asia’s GDP growth by 0.2–0.3 percentage points and raise headline inflation by 0.4 percentage points.
“Ongoing geopolitical tensions, if sustained, will increase downside risks to Asia’s macro outlook – as supply-side-driven oil price spikes will weigh on growth and macro stability risks,” the report said.
Oil prices surged sharply amid the tensions, with WTI crude rising over 6 per cent to above USD 71 per barrel, its highest level in eight months. Natural gas prices also climbed to USD 2.91 per MMBtu.
Morgan Stanley identified Thailand, South Korea, Taiwan and India as particularly exposed to downside growth risks due to wider oil and gas deficits.
China’s oil deficit, at 1.8 per cent of GDP, is relatively milder. However, the world’s second-largest economy imports 10–11 million barrels of crude per day, with around half sourced from the Middle East and at least 15 per cent from Iran.
The report cautioned that the broader impact on Asia would depend on how high oil prices rise and how long they remain elevated. “The drag appears to be manageable so far,” it said, while warning that “high trade exposure in Asia means there could also be indirect effects to growth arising from potential downside risks to global growth and trade.”
Risks are also emerging in the liquefied natural gas (LNG) market. Analysts warned that a one- to two-week blockade of the Strait of Hormuz could push Middle East LNG prices up by 20 per cent. A month-long disruption would cause “real pain” for North Asian countries dependent on imported LNG, said Suvro Sarkar of DBS Bank.
Financial markets reacted negatively to the escalation. Japan’s benchmark index fell 1.52 per cent, Hong Kong declined 1.56 per cent, India dropped 1.40 per cent, while Shenzhen slid 1.4 per cent. Regional currencies including the yen, yuan and rupee weakened as risk-off sentiment dominated trade.
U.S. stock futures were also lower, with Dow futures down 0.91 per cent, S&P 500 futures falling 0.87 per cent and Nasdaq futures declining 1.06 per cent.
Analysts said Asia’s manufacturing-heavy, export-driven economies are more sensitive to oil price spikes than the U.S. or Europe, raising concerns of slower growth, higher inflation and increased macroeconomic volatility if tensions persist.
