- Asian economies are being hit hard by the Gulf supply shock, with oil imports down sharply (~30%) and replacement barrels from the United States and Russia insufficient to close the gap, raising inflation and slowing growth
- Heavy dependence on Middle Eastern energy (≈85% of imports) is exposing vulnerabilities, with poorer nations facing acute shortages while larger economies like China and Japan rely on strategic reserves.
- Short-term fixes—reserves, subsidies, and rationing—are unsustainable, increasing the risk of demand destruction, weaker consumption, and broader economic slowdown across the region.
Asian economies are starting to feel the first serious effects of the oil and gas export paralysis in the Persian Gulf, with economic growth stuttering and likely to deteriorate over the coming months. Some are already in stagflation, and the outlook is dire.
Asia buys 85% of its total oil imports from Persian Gulf countries, which made it especially vulnerable to the kind of supply shock that almost nobody believed would ever materialize. Now that it has, Asia is suffering the consequences of its heavy dependence.
Asia imported 30% less oil last month than it did in April 2025, Kpler data cited by Reuters showed this week. Imports from the United States are surging, but they are not enough to fill the gap left by frozen Middle Eastern barrels.
According to the Kpler data, U.S. exporters are shipping 2.27 million barrels daily to Asia this month, rising to 3.29 million barrels daily in May. However, Middle East oil shipments to Asia were seen at 14.8 million barrels daily for April, per Kpler, which would be substantially down from the March average of 18.63 million barrels daily. In other words, imports from the Middle East are down by roughly 4 million barrels daily while imports from the U.S. are seen up by just one million barrels daily.
Asia is also boosting imports from Russia, with the U.S. once again extending a sanction waiver that makes these purchases possible, in evidence that Washington is acutely aware of the effect the war in the Middle East is having on global energy security—and U.S. retail fuel prices, too.
Yet there is not enough oil in the world to fill the gap entirely, which is why forecasters have started revising their growth outlooks. The Asian Development Bank recently revised down its forecast for the Asia Pacific, expecting the region to grow by 4.7%, which compares to earlier forecasts of 5.1% growth, Reuters reported. The ADB also raised its inflation outlook for the region, expecting the average to hit 5.2% this year.
The International Monetary Fund is no more optimistic. “Asia entered 2026 on a strong footing,” IMF economist Andrea Pescatori said last month as quoted by the Asia Times. However, “The war in the Middle East and the ensuing energy supply shock are raising inflation, weakening external balances, and narrowing policy options, underscoring the region’s dependence on imported oil and gas.”
Despite the overall strong dependence on Middle Eastern energy imports, not all Asian economies are equally vulnerable to the effects of the supply shock. The poorer Asian nations have been the first to start running out of options. Because of limited financial resources, these nations have not been able to build the kind of oil reserve that their wealthier neighbors have now tapped to deal with the crisis. Several countries in Southeast Asia have begun implementing energy austerity measures, with the Philippines declaring a national energy emergency.
China, meanwhile, sports an oil reserve of more than a billion barrels accumulated over the last couple of years, it has a much more diversified supply base featuring Iran and Russia—unlike European importers, for instance—and was quick to curb fuel exports to secure domestic supply. Japan, for its part, maintains a solid oil reserve of some 400 million barrels, which makes it one of the largest in the world. It has now started to drain that reserve to keep a lid on local fuel prices.
Other Asian nations have taken various measures to deal with the tightening of oil and gas supply but the problem with these measures is that they cannot be sustained over a long period of time. Working from home is a temporary remedy in a shortage situation and so are fuel subsidies and releases from strategic oil reserves. The subsidies are also quite dangerous because they empty government coffers quite quickly, limiting the government’s ability to intervene in other sectors should the need arise.
Some have started to ration fuel use, while others, namely Japan and Australia, have taken to cooperation deals in the energy space, taking a long-term approach to energy security planning. Yet the immediate problem of not enough oil to go around remains. The ultimate remedy, if it can be called that, would be demand destruction if the war drags on for months. This demand destruction will occur naturally as prices become unpalatable for a growing number of consumers.
Economically, this is bad news because shrinking consumption means a shrinking economy. This prospect led Goldman Sachs to also revise its outlook for some Asian economies, including Japan and the Southeast Asian nations, although it noted that, so far, the impact of the war on Asia has not been as bad as feared. Still, the bank’s analysts said, “How much of the resilience thus far reflects structural factors versus unsustainable declines in buffer stocks?” It appears that we are about to find out soon enough.
Related: U.S. Fuel Exports Hit Record High as Hormuz Crisis Reshapes Global Energy Flows