Asia’s response to the Middle East conflict: toward energy and economic resilience

IISS | Wakana Asano

The 2026 US–Israel war with Iran has severely disrupted Middle Eastern energy supplies, threatening Asian industrial and fiscal stability. Prior to the conflict, approximately 80% of oil products and 90% of liquefied natural gas passing through the Strait of Hormuz were destined for Asia. Energy shocks quickly spread.

Asian Development Bank projections indicate regional GDP growth will drop from 5.5% in 2025 to 5.0% in 2026. Import-dependent states face mounting fiscal distress, highlighted by Sri Lanka’s fuel import bill surging by approximately 75% year-on-year in March 2026. In response, thirty-two governments released 400 million barrels of emergency oil through the International Energy Agency. Asian governments are also enacting domestic gas allocations and establishing new bilateral supply-resilience pacts, including the July 2026 Australia–Singapore agreements. Meanwhile, Japan launched the US$10 billion POWERR Asia initiative alongside World Bank programs to secure supply chains, though structural economic risks persist.

Comment

The coordination of emergency reserves through the International Energy Agency provides only temporary insulation against maritime chokepoint interdictions. State-directed fuel subsidies and domestic rationing offer immediate buffer capacity, yet they rapidly deplete sovereign fiscal reserves while failing to replace physical energy inflows. Relying on strategic stockpiles transfers vulnerability from market pricing to volume availability. Without access through the Strait of Hormuz, inventory releases merely delay catastrophic industrial contraction across energy-dependent manufacturing hubs.

This operational dilemma mirrors the systemic supply shocks observed during the 1973 Arab–Israeli War, where emergency allocation mechanisms could not compensate for sustained maritime blockades. Bilateral agreements like the Australia–Singapore Industrial Base Resiliency Arrangement attempt to institutionalise fallback supply lines, but regional reallocation remains constrained by global tanker capacity. Consequently, the crisis demonstrates that legal trade protections cannot mitigate physical supply bottlenecks during extended conflicts in the Persian Gulf.

Strategic Question for Discussion

Which factor limits regional resilience more during a prolonged closure of the Strait of Hormuz — physical tanker availability or the fiscal ceiling on national energy subsidies?

The pattern suggests physical tanker constraints present the more acute immediate bottleneck. While middle-income Asian governments can extend debt to maintain energy subsidies temporarily, no fiscal mechanism can generate alternative shipping tonnage once chokepoints like the Strait of Hormuz are severed. Consequently, structural supply-chain vulnerabilities will outlast sovereign financial buffers in a prolonged conflict.

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