MW Asian economies running out of fuel, and time, as the fallout from Epic Fury widens

By Jules Rimmer

Asia is heavily dependent on imported energy from the Middle East

All Asian economies are net importers of oil, although Australia, Malaysia and Indonesia are able to offset that by exporting gas

The broadening out of Operation Epic Fury into a regional conflict is starting to inflict serious economic pain on the Asian economies.

Every Asian country is a net importer of oil and therefore vulnerable to higher energy costs, while the second-order impacts of disrupted food supplies, trade flows and remittances will filter into all regional economic activity soon enough.

These concerns are already manifesting themselves in the performance of regional stock markets as Asia starts to reverse much of its 2026 outperformance of U.S. equities. For example the iShares MSCI China exchange traded fund MCHI has fallen almost 8% from its February peak, while the most liquid ETF for Indian shares INDA has dropped 11% and that of Japan EWJ has also fell 11% in the last month.

Analysts at French investment banking firm Natixis Research published a report Thursday which warned that declining current account surpluses will weaken Asian currencies, raising inflation expectations and lead to tighter financial conditions. Of those countries analyzed, Natixis found that as a major net importer of food and energy, the Philippines is the most susceptible but no country is likely to emerge from the Iranian war unscathed.

Total Energy Supply by Fuel

Disturbingly for Indonesia, to cite just one example, its 2026 budget factors in an average oil price of just $70, compared to the present level (BRN00)well in excess of $100. This threatens Indonesia's deficit limit of 3 % of GDP.

The upshot for markets is that after initially allowing their currencies to absorb some of the shock, Asian central banks will be forced into tightening monetary policy.

The Natixis note, authored by Trinh Nguyen, looks first at the immediate shock of the oil price spike that has resulted from a fifth of the world's daily supply being shut in the Strait of Hormuz. Although Australia, Malaysia and Indonesia can offset their oil imports with gas exports, the rest of the region will take an instant hit with Thailand affected worst as a percentage of their GDP.

Nguyen, the EM Asia economist at Natixis, writes that "higher prices raise import costs that first pass through the current account and then pass on to the economy via more expensive fuel bills or the government will need to pay for it through fuel subsidies."

Nguyen points out that most of the Asian economies operate current account surpluses at present so they may be cushioned for a short period, but sooner or later the likes of China, Taiwan, Vietnam and Malaysia will be obliged to raise fuel subsidies. China and Japan have significant strategic stockpiles of crude but will not be fully insulated especially as there is derivative upward pressure on gas, and even coal, substitutes.

China's diversification into renewables will alleviate some of the pressure, Nguyen observes, but its economy is still essentially oil , gas and coal dependent.

The interruption of urea exports from the Middle East is already starting to increase global fertilizer costs and the Natixis note explains why this is particularly worrying for the Asian economies that have weightings for food and transport in their consumer price index baskets ranging from 50% to 70%. Poorer countries devote a bigger part of their incomes to essentials like food and transport than the Western hemisphere.

Asia: Weights in CPI Basket (% of Total)

Nguyen adds that countries like the Philippines and India will experience a major contraction in overseas remittances from workers abroad, with a large number employed in and around the Middle East region.

Tourism-dependent economies like Vietnam, Malaysia and Thailand can also expect fewer visitors through the disruption of air routes and the soaring jet fuel prices that will make air travel that much more costly.

-Jules Rimmer

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March 20, 2026 06:46 ET (10:46 GMT)

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