Asian Economies Face Energy Crisis Amid Iran War

Asian economies are facing a severe energy crisis following the outbreak of war in Iran in late February 2026, with several non-wealthy nations forced to ration energy supplies to manage the shortage.

The crisis is driven by the large-scale blockage of shipping traffic through the Strait of Hormuz, a critical global energy chokepoint that handles approximately 20% of the world’s oil. Since hostilities began in late February, Iran has largely blocked the passage, causing oil prices to rise above US$100 a barrel at various intervals.

Asian Dependence on Gulf Energy

Asian economies are being hit particularly hard by the disruption because they are the primary customers of energy from the Gulf. According to figures published by the International Energy Agency in 2025, Asia was the destination for nearly 90% of the liquefied natural gas (LNG) and around 80% of the oil and petroleum products that transited the Strait of Hormuz during that year.

While the entire region is structurally exposed to the crisis, the impact varies significantly based on the fiscal health and energy infrastructure of individual nations.

Impact on Low-Income Economies

Countries with limited financial resources are the most vulnerable to the current market disruptions. These states share specific structural characteristics, including a heavy reliance on imported fossil fuels, constrained energy systems that prevent a rapid switch to alternative energy sources, and limited fiscal space.

Bangladesh, Pakistan, and Sri Lanka are among the nations most heavily dependent on imported oil and gas to meet their domestic demand. Unlike wealthier nations, these economies lack the foreign exchange reserves necessary to secure energy supplies when global markets become volatile.

As prices spike and supplies tighten, these governments are forced into difficult trade-offs between maintaining energy access, controlling inflation, and ensuring fiscal stability. The tangible effects of this volatility were evident in Sri Lanka, where people were reported queuing to purchase fuel at a gas station in Colombo on March 17.

Response of Wealthier Asian Economies

Wealthier economies, including Japan, South Korea, Hong Kong, and Singapore, are also structurally exposed due to their deep dependence on fuel imported from the Gulf. However, these nations possess greater financial resources, which provides them with superior purchasing power in volatile markets.

The primary difference in resilience for these wealthier states is their fiscal capacity to maintain strategic energy reserves. These reserves provide a temporary buffer against supply disruptions.

In response to the war in Iran, Japan and South Korea have both initiated record-breaking releases from their state oil reserves to mitigate the impact of the blockage in the Strait of Hormuz.