Can Asian economies cope with the fallout from the Iran war? | Counting the Cost

Ajouté : 2026-05-16

[00:00:00][music] [music] >> Hello, I'm Tom McRae. This is Counting the Cost [music] on Al Jazeera, your look at the world of business and economics.

[00:00:20]Asia is running low on fuel. As much [music] as $300 billion in economic output could be wiped out. So, how are Asian nations coping with the fallout from the Iran conflict? And can they shield their people from the worst of it?

[00:00:35]But, the toll is uneven. Crisis-hit and lower-income Asian economies could suffer the most. [music] So, how do vulnerable nations respond when they are already running on empty?

[00:00:45]>> [music] >> And who ends up paying the price?

[00:00:50]>> [music] >> Working from home, four-day weeks, [music] blackouts, fuel queues. This is the fallout from the Iran war, thousands of kilometers away from the conflict.

[00:01:03]Across Asia, governments are scrambling to shield their economies from the worst of the energy crisis. Some are rationing fuel, others are reintroducing subsidies, or limiting exports altogether. And the longer the Strait of Hormuz remains disrupted, the worse it gets, especially for vulnerable economies. Rising oil prices are driving up import bills just as remittances fallen, currencies weaken. Dollar-priced fuel, food, fertilizer, have all become more expensive, forcing governments to burn through reserves, borrow more, or cut elsewhere. Fonten Monahan reports.

[00:01:41]The crisis at the Strait of Hormuz has disrupted 20% of the world's oil and gas supplies.

[00:01:46]Most of that lost output was bound for Asia.

[00:01:50]So, for those nations, it's not just prices going up, it's supplies running low.

[00:01:55]Some economies, like China, South Korea, and Japan, have large reserves, enough to cushion their population from the immediate fallout.

[00:02:02]They've implemented export restrictions to make them last longer, but that's further disrupted supply to other nations in the region, making their situation even worse.

[00:02:12]Pakistan is particularly vulnerable. Its economy was already fragile after years of inflation, debt, and sluggish growth.

[00:02:21]It relies heavily on imported fuel, and petrol prices have been soaring.

[00:02:25]In terms of percentages, it's increased approximately 30 to 40% more.

[00:02:30]Yeah, that that that's that's a big issue that has to be compounded. Because you see that everything all the prices are proportional to the prices of petrol. As energy gets more expensive, inflation is pushing up prices.

[00:02:42]Businesses are feeling the squeeze, and that's being passed on to consumers.

[00:02:49]Everything has become expensive, and it's very hard for us to afford. We are appealing to the government to consider our situation.

[00:02:57]Like many countries facing an energy supply crunch, Pakistan is tightening its belt. Shops and restaurants have been ordered to close early every evening in a bid to reduce power usage.

[00:03:08]Many government and private sector employees are working from home, and the government has imposed a four-day work week.

[00:03:14]Pakistan's weekly petroleum import costs have surged from $300 million before the conflict to $800 million now.

[00:03:22]That's led to government departments being told to reduce their spending by 20%, but these are short-term fixes and may be unsustainable if the crisis drags on.

[00:03:32]Many Asian nations are looking for new sources of power to fill the gap. Coal plants are being fired up to maximum capacity as a more reliable alternative for the time being.

[00:03:42]Others are looking for new suppliers of oil and gas.

[00:03:46]Taiwan has ramped up imports from the United States, while India is buying more from Russia.

[00:03:51]The whole region is bracing for heavy economic consequences. The UN Development Program says output losses across the Asia-Pacific region could range from 97 to nearly 300 billion dollars.

[00:04:03]The Asian Development Bank has cut its growth outlook for developing economies in Asia from 5.1% to 4.7%.

[00:04:11]Millions of people are enduring austerity and billions of dollars are being spent as Asian nations do what they can to weather the crisis. But, the longer it drags on, the more the economic pressure is likely to rise.

[00:04:24]Fenton Monahan, Al Jazeera, for Counting the Cost.

[00:04:27]Let's discuss this further with our panelists. Joining us from Hong Kong is Trinh Nguyen. She is a senior economist at the Texas Research Group focusing on the Asia-Pacific region. From Brighton in the UK is Sambit Bhattacharyya. He is a professor of economics at the University of Sussex and an expert on South Asian affairs. And in Lahore is Ali Hasanain. He's an associate professor of economics at the Lahore University of Management Sciences, as well as a Board of Governors member at the National School of Public Policy.

[00:04:58]Thank you so much for being with us here on Counting the Cost today. Sambit, if I can begin with you, this isn't the first time that Asia has faced a an oil shock.

[00:05:06]What makes this one different, though?

[00:05:09]I think the scale of this shock is quite different from what Asia has experienced in the past. Um and also Asian economies are much more industrialized and more diversified. And as a result, they are much more dependent on fossil fuel at this stage of their development. So, the shock bites.

[00:05:27]Okay. Trinh, the UN saying though that this could cost up to 300 billion across the Asia-Pacific region. Goldman Sachs, on the other hand, is saying that the impact hasn't been as bad as as it feared. Which picture is is closer to reality right now?

[00:05:43]Well, I think the impact is negative for Asia, but really it has widened the the divide between those that have and have not. So, if you look at, for example, the Philippines, which is quite hit not just the oil shock, because it depends a lot of imported refined oil, and given the fact that China has this huge crude spot stock pile and has banned the export of refined oil, the Philippines is has to deal with the shortage of supply with demand destruction. In other words, it's dealing with it a much more difficult position than say China or even compared to suppose that to South Korea, which South Korea has a means to throw $17 billion of subsidies at it, which means while inflation rises, households are only feel as much. And on the other hand, South Korea also have higher chip export that offset the decline of higher cost of fuel. So, I think both are right in that for some countries, you haven't really felt that. In fact, the market has looked over it like South Korea, where chips have been a much positive drag offsetting much more of a negative drag. Whereas, if you look at the likes of South the Philippines or even Pakistan, where the only way they can deal with it is via demand destruction.

[00:06:50]And we haven't really talked about the food component. And when we talk about the Philippines, we have to pay attention to the fact that the 7.2% increase of of inflation is also driven by rice inflation. So, the oil and gas crisis is also an oil and gas derivative products, which are inputs into fertilizer, which are inputs into plastics. While these things are negative across Asia as a consequence of the war, the fact is that they are coming into this crisis in a very different position. As a result, the cost of have felt much greater in some countries than others.

[00:07:27]>> Yeah, we'll get on to the the the the food and fertilizer issue in a couple of moments. Ali, we obviously have heard and seen that Pakistan is suffering more than many other countries right now. Can you just give us an idea of of the change that has happened in Pakistan for the average person since this war began.

[00:07:46]So so just to follow up on what Prem was saying, the impact for different countries depends on the level of cushion that we had going into the crisis. And clearly different countries differ on that basis. In Pakistan, we have some of the some of the least cushion possible because we've already been facing a long-standing IMF managed crisis in our resources.

[00:08:13]And so specifically, we have not been able to pass on too many subsidies to our people and have had to pass on most of the energy cost increases to them. There is targeted relief such as some that your report mentioned, but also others like subsidies for motorbike users and so on. But the quantum of the of what Pakistan can deliver to its citizens is very small compared to the inflation cost. So last month, inflation jumped from 7% to 11%. And depending on how this crisis continues to pan out, there are sort of secondary shocks that are expected.

[00:08:54]First, because food prices might go up because transporting food to houses is going to go through the transport obviously chain and that is very dependent on fuel from the Middle East. And also down the line due to fertilizer shortages.

[00:09:11]>> Okay.

[00:09:12]Some but it's obviously not just Pakistan that's suffering here. Can you just run us through some of the other affected nations and and how do they respond if if they're already running on empty?

[00:09:24]Well, I guess I mean you know, all nations in Asia are affected.

[00:09:29]If you look at South Asia, South Asia at the moment looks relatively more vulnerable than the others.

[00:09:36]I think Trend mentioned that, you know, Japan and South Korea has large reserves. But still they are not also immune. What you see is that there's by bifurcation taking place in terms of sort of supply chain, you know, how supply chain is playing out in terms of oil.

[00:09:55]So there are two things to to to consider here. One is refining capacity.

[00:10:02]So refining capacity differs across nations. And the oil is not you know, a homogeneous good. There are different types of oil. So Middle Eastern light crude. So if your refining capacity is geared towards that, if you think of Vietnam for example, is heavily reliant on Kuwait.

[00:10:24]And their refining capacity is is is is geared towards sort of refining Kuwaiti oil and oil products. In contrast, so China is a bit more diversified. And China is relying heavily on energy products from Russia, which is heavy crude. And the same same is taking place in India. So it's a mixed bag, but the effect is quite widespread. Trend, some believe that the the countries that are struggling the most here like Pakistan that we've been talking about it are caught between two bad options almost. You either pass on global oil prices to consumers and you face the public backlash for for doing that or you subsidize fuel and and blow a a hole in in your budget.

[00:11:09]Which way I guess how how are different governments navigating this?

[00:11:14]And are there any good choices here right now for them?

[00:11:18]Well, I think the clearest example you see is the choice between Indonesia and South Korea. Indonesia continues to subsidize. Its first quarter GDP was very strong. But many people question whether or not they can sustain that strong growth. Why? Because they have the most expensive food subsidy program that they started, which costs about 1.5% of GDP, which is very big and they have to cut a lot of uh other projects for it. The second is that the fuel subsidy, as you know, um the more you subsidize a thing, you actually incentivize the usage, which means the volume is going to be quite large. In contrast in Indonesia, Malaysia got a surplus gas and they continue subsidies, but they have continued to cap the volume. So, I think they will increase even if narrowing the cap. So, the fact that Indonesia has this huge subsidies means it's going to cost it about 1% of GDP, which it doesn't have the space to do. And as a result, investors have really really reacted very negatively to this. Despite the fact that has accelerating growth, investors um there's a lot of outflows from investors to be very concerned about the fiscal sustainability of Indonesia and whether or not this is a wise move.

[00:12:24]Fundamentally, we think that Indonesia will remove the subsidies. It'll probably maintain it into the second quarter, but remove it. And juxtapose into that to South Korea, which subsidizes uh roughly, I think, uh about the same amount, 0.9% of GDP, but it's very comfortable for South Korea to do so because it has rising exports, import costs are rising, but exports are rising even much faster thanks to chips and also refined um uh they they they export a lot of refined products and that's been gaining as well. So, their terms of trade are worsening from the import side, but actually improving massively from the export side. And from from from taxation point of view, they're able to have probably the higher corporate tax rate to make up for this shortfall of fiscal spending. And fundamentally, their fiscal uh debt is really low to start. So, as a result, um markets have been pretty sanguine about South Korea.

[00:13:14]Of course, there's an expectation they would raise interest rate, tighten monetary policy, but they're tightening into higher growth. Whereas Indonesia, I think they will continue probably have to tighten, but the fact that they refrain from tightening by using fiscal.

[00:13:28]They are paying it via investment sentiment and it has the worst stock market in the world at the moment because of that, even growth is accelerated. And the other alternative is really the Philippines. But they pass on all the cost. They do have subsidies similar to Pakistan, but not enough. As a result, inflation is rising.

[00:13:46]Growth is decelerated, but they have to raise interest rates. And the reason why they have to do it is really reality is that other countries are. Look at Australia, in an economy that's raised 75 basis point. Policy rate now is 4.35%.

[00:14:02]Before the Philippines raised it, it's at 4.25%.

[00:14:05]What an economy which is lower rated and the facing deteriorating investor sentiment, the Philippines, if it wants to regain investors, will have to raise real rates because inflation is at seven, policy rate is four-ish percent. So, in other words, we do think this is a very difficult position for Asian countries to go into. The good news is that they're coming from a pretty, I would say, historically low rates environment, low inflation environment, so that they have a bit of move room to move. But countries that have limited space will have to tighten with a slowing [clears throat] growth.

[00:14:36]Whereas countries are much more comfortable to tighten like South Korea.

[00:14:39]So, there is widening divergence and I think this crisis is going to widen it further.

[00:14:46]Make a difference between the the the haves and the have-nots that you mentioned earlier. One of the other big issues that we've also mentioned is that it's not just about oil. The disruption at the Strait of Hormuz is affecting more than just energy exports. Gulf nations make large amounts of fertilizer, around a third of the world's seaborn exports. The crisis has pushed up prices and limited supply, which could affect future harvests. The World Food Program is expecting food insecurity in the Asia-Pacific region to rise by 24%.

[00:15:17]Asian microchip makers rely on helium, another major Gulf export. Some Asian firms are considering slowing down production. Taiwan, for example, is looking to a French producer to boost supply. And Bangladesh's garment sector relies on inputs like polyester and nylon. Both of these are derived from petroleum. There have already been disruptions with some shipments failing to get out on time. And then there's remittances. Millions of workers from South Asia travel to the Middle East for work and send money back home. A downturn in the Gulf could endanger that revenue stream. In Pakistan, it accounts for around 10% of GDP. Ali, just on that point, remittances, 10% of GDP, that impact alone, that is massive there. What what is it doing to the economy right now?

[00:16:07]It is so remittances is something that has grown in the last two decades or so in particular.

[00:16:12]And part of what that does multiple things to the economy. One is that it means that Pakistan is able to finance more imports than its export sector would otherwise allow.

[00:16:25]And the other is that because this money is sent back typically by low-skilled labor back home, it's had an impact on lifting people out of poverty. So, the Pakistan's economy as it shaped today relies heavily on those remittances.

[00:16:42]Which are in particular under question from states like the UAE because sort of the recent geopolitical moves that have been made might mean that these countries end up being on potentially different sides of the equation.

[00:17:00]Pakistan has sort of seen an increase in goodwill because of the sort of facilitating role that it's tried to play.

[00:17:09]And the government's managed that quite well.

[00:17:11]But at the same time, these risks might be in fact greater because of the the more active role that it's played.

[00:17:19]Mhm. Um and and so these remittances, if they if they do come under question, will impact both the ability to finance further imports as well as potentially impact micro level development because the people sending money back are often people lifting their families out of poverty. Um so that's whether that does in fact manifest is something that remains to be seen and hopefully won't happen. Yeah. Obviously, the issue with fertilizer not getting through the Strait of Hormuz is also a huge one. Some of the UN's warned that food shortages could actually reach quite catastrophic levels in their words if the the fertilizer supply stays disrupted and and that countries may need financial assistance to to try and secure fertilizer for the next planting season.

[00:18:10]Where does that money come from though?

[00:18:12]And and and what does it mean? I mean, does it mean more debt for for those that are already struggling?

[00:18:18]Well, I mean, it depends, Tom, on, you know, who who in the end is taking up that that that leverage. So, in a sense, you know, when you have a situation due to a supply shock in strategic commodity, it has knock-on effects on the rest of the economy and the initial impact is on demand as you can see that there's demand destruction taking place either through inflation and then subsequently central banks potentially increasing interest rate or through some degree of rationing depending on the country that you pick. Um the food sector is somewhat different in the sense that, you know, I mean, there is an annual cycle in terms of harvesting and so on. So, lack of fertilizer is not going to affect food supply immediately, but it will have a long-lasting effect, especially the effect kicking in from next year onwards.

[00:19:16]And that's a real risk. So, if you look at sort of supply of fertilizers, that's quite concentrated. Asia relies quite heavily on West Asia and the Gulf countries in terms of supplying fertilizers. But there are other big big suppliers as well, such as Russia and Belarus. But I expect again that there will be geopolitical dividing lines. I think India is positioning itself quite closely with Russia and and and looking to meet its demand using Russian supply.

[00:19:50]China, it's pretty clear that, you know, China is aligning very closely with Russia as well.

[00:19:56]That leaves the other Asian countries.

[00:20:00]And it it remains to be seen. You know, there are alternative suppliers of food such as Canada and United States, not necessarily fertilizers. But, you know, given overall global food food demand, I think, you know, these supplies will not be able to meet them.

[00:20:18]So, it is absolutely crucial that the the the the crisis in Gulf of Hormuz in the Persian Gulf and the Strait of Hormuz is resolved as soon as possible. Trinh, you mentioned the the widening gap between the haves and and the have-nots earlier. When it comes to the the food shortages and the and the potential crisis there, is that going to be exacerbated for those that those countries that are already struggling?

[00:20:47]Absolutely. So, I think, you know, the fertilizer crisis, as the professor mentioned, is really about longer term because people already have the fertilizer they need for this particular season.

[00:20:58]The second one is that if you actually have your own fertilizer production, like China, you can actually ban the export of it. That's what it did with refined product and um fertilizer. In India, they subsidize fertilizer, so that's going to come at a cost to the government because the subsidies bill itself is probably going to blow up. In um Thailand, um the issue between India and Thailand is really the input cost.

[00:21:22]So, who's going to pay for that? So, in India's case, it's the government's it's a erosion of profits that's you're going to see in the government uh uh uh fiscal uh uh expenditure. Now, fundamentally, these aren't food exporters. So, they have choices. What India did during the last crisis when Ukraine happened is that it banned export of food, and so therefore for exporters for for grain producers, that wasn't very good because they couldn't sell at higher prices, but then the domestic urban population was much happier. Now, Thailand did the same thing. But, the Philippines does not have that choice. It is a net importer of food. It imports rice. Rice is an essential. It's not a non-essential. You can't just choose not to eat rice. Um and as a result, inflation rose. And therefore, this time around, the same thing is happening to the Philippines.

[00:22:10]The latest inflation shows it isn't just transportation going up, but it's rice price going up. So, the longer this loss, I think that's going to squeeze on discretionary spending in the Philippines. And you look at the latest GDP, when you look at consumption in the Philippines, it tends to be relatively inelastic, but this time around, it slowed significantly. So, it has a huge impact on other sectors such as discretionary spending. So, I do think that even when it comes to food, countries do have choices. Even those impacted like India or Thailand who have a huge food sector, they have choices in that fundamentally, it's about squeeze of the margins, profit margins, but it's not a huge balance of payment uh crisis like you see in places like the Philippines, which is why at the beginning of the crisis, we came out and say that the Philippines is most vulnerable. It's most vulnerable not because it has the biggest energy deficit as a share of GDP in trade, but it's vulnerable because it has a deficit in energy, a deficit in food, and moreover, the capital account is reliant on importing capital to sustain the current account. And as a result, when you look at all these different channels, plus 1.4% of remittance of GDP in remittance exposure, then it's the most vulnerable. India is somewhere between 1.2% exposure to the Middle East remittances have tend to be altruistic.

[00:23:31]So, they do not fall sharply. They do decelerate. So, when you have income source decelerating and you have expenses going higher, that pain is being felt much more than countries where you just have import costs going up and then you just throw some money at it and hopefully the war would be over soon and that would not be an issue.

[00:23:49]Whereas countries like the Philippines, it will feel this on a more much more long-lasting ways. Okay, thanks so much, Trin. Ali, obviously Pakistan has been here before for fuel queues, power cuts, IMF bailouts. If we see this continue for for the next 3 to 6 months, the closure of the Strait of Hormuz, what's the single biggest risk for Pakistan?

[00:24:12]As I as I told you earlier, we about 80% of our energy imports are sourced through the Gulf region. That's the biggest threat.

[00:24:21]It also means that so we import a lot of LNG from Qatar and we have long-standing and relatively cheap contracts relative to the spot price today.

[00:24:35]And so if those supplies get sort of get breached, then that means an impact both on our short-term energy but also our medium-term fertilizer costs.

[00:24:50]Our import bill for fuel has gone up almost three times Um, we can so we can absorb that for a month or two, but then it we're going to start having um, energy uh, blackouts um, down the line. One thing that's really helped us over time is the increase in uh, solar panel uh, installation in Pakistan. Right. Um, because that's brought energy uh, resilience online. It brings its own set of issues, but it's brought some energy resilience um, online for us. Okay. Um, but there's no there's no two ways around it. If the conflict continues, every country in Asia is going to feel uh, an impact. Um, when we were talking earlier about the fuel uh, the fertilizer constraints and how particular countries can deal with the uh, with the problem. It's also a supply issue, not just a pricing issue right now, because there are um, so there is um, output installed output that is now being that has now been shut down, which means that our ability to uh, react in the short term is limited. And so it's quite possible that the world will have less food to distribute um, this year um, than is necessary to keep to ensure that people are nourished well. Okay.

[00:26:03]And so um, the bet- the better the sooner this conflict ends, the better for everyone. Yeah, of course. Um, just on that Sam, but the longer that this uh, continues and this uncertainty uh, lingers, could we actually see these shortages push some countries into social unrest or or recession, do you think?

[00:26:22]Well, I mean, um, I think inflation is given uh, and um, with demand destruction, um, you can expect um, that there will be uh, some degree of recession or economic slow down. The current forecast, as your report says, from the Asian Development Bank is roughly about a percentage point uh, loss of GDP that they are predicting.

[00:26:45]Um, it could be bigger than that. I think the elephant in the room is what are the knock-on effects. So, bigger economies are better place to withstand this shock because they have bigger and diversified economies, whereas uh smaller economies are much more vulnerable. Um Philippines was mentioned earlier. I'm sure that there are others.

[00:27:06]Um so, the key question is what are the knock-on effects for their financial sector? Uh to what degree are debt exposure in these countries? And then, um you know, uh through the derivatives channel, um what are the ex- posure of uh of of financial institutions in other jurisdiction through that. So, longer this goes on, the chances of this leading to a potential financial crisis increases. So far, you can see that the big central banks such as the Federal Reserve has managed this well into the providing adequate amount of liquidity where it's needed, uh but it's not a given. Uh as the stresses increases, then I think we we might very well see that some some some of these countries and their financial institutions might snap. And then, we are looking at a much more longer-term crisis. Well, we'll have to leave it there um for today. We really do appreciate your time. Trinh Nguyen, senior economist at Natixis Research, Saikat Bhattacharya, professor of economics at the University of Sussex, and Ali Hasanain, associate professor of economics at the Lahore University of Management Sciences. Thank you so much for joining us here on Counting the Cost today.

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