Asia-Pacific economies face a growing energy shock that reserves can only partly absorb, as heavy reliance on Middle East imports and tight regional linkages amplify risks, S&P Global Ratings said in a report published Thursday.
Disruptions to crude and refined fuel supplies could hit manufacturing and trade hard, while rising end-user prices are likely to compound inflationary pressures across the region, the report said.
Weaker currencies and higher costs are expected to fuel inflation, strain economic growth and force difficult policy trade-offs, particularly among economies with uneven exposure to energy imports.
Dependence on Middle East supplies
“The Middle East supplies about 40% of Asia-Pacific energy imports, and about 90% of the crude oil shipped through the Strait of Hormuz is destined for Asia,” said Eunice Tan, S&P Global Ratings’ head of credit research for Asia-Pacific.
“However, the region’s energy import patterns vary widely, making the overall picture more complex than it appears,” she added.
While many economies depend heavily on imported crude and refined fuels, some rely on a small number of geographically concentrated suppliers, leaving them more vulnerable to disruption.
The report, titled “Asia-Pacific’s Energy Flows And Gaps In 10 Charts,” said reliance on liquefied natural gas from Qatar is generally limited, except for mainland China, India and Taiwan. Still, concentrated supplier dependence and reliance on LNG for power generation create energy security gaps.
Economic and industrial strain
With reserves dwindling, a prolonged conflict and disruption in energy flows could sharply intensify economic pressures, the report said. A manufacturing shutdown would cause more severe damage, while competition for oil could price out lower-income nations, leaving alternative crude sources largely accessible only to wealthier economies.
Manufacturers are likely to feel the impact first, with their ability to pass on higher costs to consumers determining the broader credit impact across sectors.
Refined fuel shortages could also prompt countries to extend rationing or prioritize domestic needs over exports, potentially curbing industrial activity both locally and globally.
Market pressures build
Imbalances in energy flows and reserves are already pushing up prices, squeezing margins and weakening demand, particularly in emerging Asia, S&P said.
Capital outflows are also weakening currencies, forcing policymakers to balance domestic energy security against export stability.
Efforts to diversify energy supply sources are expected to make the region’s trade landscape costlier and less productive over time, the report added.
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