Nomura Flags Oil Shock Risks For Asia’s Import-Dependent Economies
The escalating Iran conflict has triggered a sharp surge in global oil prices, posing significant risks for oil-dependent Asian economies, with countries such as India, Thailand, South Korea and Philippines among the most vulnerable due to their high reliance on imported energy, according to a report by Nomura. In contrast, Malaysia could emerge as a relative beneficiary given its position as an energy exporter.
The geopolitical escalation, following military actions involving the US, Israel and Iran, has heightened concerns over supply disruptions, pushing oil prices higher and increasing volatility across global markets. For Asia, the most immediate impact is a surge in import bills, with Nomura estimating that every 10 per cent rise in oil prices could worsen the region’s current account balance by around 0.3 per cent of GDP. Thailand, India and South Korea are particularly exposed, while the Philippines faces the risk of a widening current account deficit. In India’s case, rising crude prices combined with risk-off sentiment and capital outflows could intensify pressure on the balance of payments.
Despite the sharp rise in oil prices, the inflationary impact across Asia is expected to remain relatively contained in the near term. Nomura noted that many governments, including those in India and Thailand, regulate fuel prices or provide subsidies, limiting the immediate pass-through to consumers, though this shifts the burden to fiscal authorities. In contrast, economies such as the Philippines and South Korea, where fuel prices are market-linked, may experience a more direct inflationary effect. A sustained rise in oil prices could eventually spill over into food and commodity inflation through higher transportation and input costs.
Fiscal pressures are also expected to rise across the region as governments attempt to cushion consumers from higher energy costs through subsidies, tax cuts or duty reductions. In India, prolonged high crude prices could strain oil marketing companies’ margins, potentially necessitating government support. Similar pressures are likely in economies such as Indonesia and Thailand, where subsidy burdens could increase and weigh on fiscal balances.
The impact of the oil shock varies across the region, with oil-importing economies facing rising macroeconomic vulnerabilities, including weaker currencies, higher import bills and slower growth prospects. Meanwhile, Malaysia stands out as a relative winner due to its status as a net exporter of liquefied natural gas, which could strengthen its external balances amid rising energy prices.
Financial markets across Asia remain sensitive to oil price movements. A sustained increase in crude prices is likely to weigh on equities, particularly in import-heavy economies such as India, Indonesia and the Philippines, while currencies may come under pressure due to rising import costs and global risk aversion. Central banks are expected to remain in a wait-and-watch mode, balancing the risks of higher inflation and slower growth, with rate hikes unlikely unless price pressures become more broad-based.
Ultimately, the extent of the economic impact will depend on the duration and intensity of the conflict. Prolonged disruptions, especially through key routes such as the Strait of Hormuz, could deepen economic stress across Asia, while a swift resolution may limit the fallout to short-term volatility in markets and macroeconomic indicators.
