Donald Trump has claimed that the economic impact of his war in Iran is “a very small price to pay” for ousting the country’s regime and stopping its nuclear programme.
But his assessment might not be shared by the dozens of countries grappling with a surge in energy prices due to the blockade of the Strait of Hormuz.
In the past fortnight, Sri Lanka has introduced a four-day working week, while the International Energy Agency (IEA) has suggested people around the world should work from home to conserve energy due to the squeeze on fuel created by the conflict.
A trickle of oil is leaving the Middle East while the Strait of Hormuz remains under Iranian control, with a reduced number of boats transiting through since the end of February. The pressure was compounded after Tehran targeted numerous oil production facilities in Gulf countries in retaliation for Israel’s strikes on its vital South Pars gas field.
With no end to the Iran war in sight, experts are already warning of a new cost-of-living crisis. In the UK, bills could increase by as much as £300 from the summer – taking the country back to the inflationary aftershock caused by the war in Ukraine.
“Really, what traders are looking for is some sort of indication of an end to the conflict, and we are not seeing that,” explains Dr Adi Imsirovic, a lecturer in energy systems at the University of Oxford. “I don’t think the US realised that the actual price of oil going to the refineries, and what will go to the end users, is actually a lot more expensive than what the markets are indicating.”
The cost of Brent Crude, considered to be the global oil benchmark, has soared more than 60 per cent since the war started. When the market closed on the evening of 27 February, it was priced around $71. On Wednesday, prices briefly peaked at $119 a barrel, the highest figure since the first few months of the war in Ukraine.
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Why Asia is at risk of an economic shock
Asia is particularly dependent on the Strait of Hormuz. It accounts for roughly 80–84 per cent of global crude oil flows and over 80 per cent of Liquefied Natural Gas (LNG) transit through the strait, according to Dr Umud Shokri, energy strategist and senior visiting fellow at George Mason University.
But not all nations are expected to struggle, he says.
“The extent to which countries are going to be impacted depends on two main things: the proportion of oil they buy from the Middle East and what other reserves they have.”
China is the largest importer, with virtually all the Iranian oil prior to the conflict going there. Even now, tankers holding the sanctioned resource are exiting the strait for China.
“Over time, China worked very hard on their supply, so they’re one of the biggest buyers of South American oil. They’re a huge buyer of Russian oil. They buy a lot of West African oil,” says Dr Imsirovic. “With their financial muscle, they managed to also build huge stockpiles of reserves as well.”
Countries like Japan and South Korea are “hugely exposed”, he says, but due to their “fairly large reserves” they will not face the same shock that some countries in South Asia will receive.
Here are the countries expected to fare the worst from the Middle East oil crisis:
India
India accounts for 14.7 per cent of imports reliant on the Strait of Hormuz, according to Dr Shokri, who said cooking gas was particularly vulnerable.
“More than 60 per cent of Liquefied Petroleum Gas (LPG) demand is met through imports, making cooking fuel particularly vulnerable,” he says. “If disruptions persist, households may face reduced access to energy, rising costs, and increased reliance on lower-quality fuels such as biomass or kerosene.
“This would not only raise living costs but also create health risks, especially for lower-income populations, while amplifying pressure on already strained public services.”
Electric induction cooktops have flown off the shelves in India as households rush to buy the appliance amid the cooking gas shortage.
Already, several models have sold out on e-commerce and quick-commerce platforms such as Amazon, Flipkart, Blinkit, Instamart, and Zepto, while some offline chains say fresh supplies are still days away.
Sri Lanka
Sri Lankan authorities said on Tuesday they have around six weeks of fuel reserves left, as the country depends heavily on gas and oil imports. Authorities introduced a four-day working week and strict fuel rationing to preserve dwindling supplies.
Prabath Chandrakeerthi, commissioner of essential services, told reporters after meeting President Anura Kumara Dissanayake that all state institutions, along with schools and universities, would shift to a four-day work week.
“We are also asking the private sector to follow suit and declare every Wednesday a holiday from now on,” he said.
This week, a video went viral showing a man in Sri Lanka riding a scooter while carrying another scooter on his lap as he searched for fuel, according to the Colombo Post.
Pakistan
Pakistan takes roughly 85 per cent of its energy from the Strait of Hormuz, according to Dr Shokri. The country has already implemented remote work policies and fuel-saving measures as a result.
Prime minister Shehbaz Sharif warned that the government needed to reduce fuel consumption and prepare for potential supply shocks given the situation in the Middle East.
In a televised address, Mr Sharif said schools across the country would close for two weeks. He also said that universities and other higher education institutions across the South Asian country will switch to online classes during the period to maintain academic activity while limiting travel.
“In the next two months, government departments will get a 50 per cent cut in fuel allowances,” Mr Sharif said, while public offices will open for only four days a week and half of government employees will be ordered to work remotely.
Bangladesh
Bangladesh is about 95 per cent dependent on oil imports with around 20 days of reserves, according to Dr Shokri. Saudi Arabia and Qatar are two key suppliers.
The country has imposed fuel caps and deployed troops to prevent fuel hoarding.
Prime minister Tarique Rahman is reportedly seeking around $2 billion in loans from multilateral lenders by June to finance imports of liquefied natural gas and other fuels during the summer, according to Bloomberg.
The administration expects $1.3 billion alone from the International Monetary Fund, along with $700 million from the Asian Development Bank.
How will the UK be affected?
While the UK is less dependent on oil from the Middle East – with virtually all of its imports coming from the North Sea and the US – it does rely on imports of jet fuel and diesel from the region, particularly from Kuwait, where two refineries were hit in Iranian attacks.
The UK depends on imported LNG, which creates a far bigger problem than oil, according to Dr Imsirovic. While most of the UK’s gas comes from Norway and the United States, some of it comes from Qatar.
“The problem is, in these international markets, prices are going up,” he says. While heating season may nearly be over, usually by June the UK starts to build reserves in Europe – and the UK has very limited reserves at the moment.”
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