Asia’s energy shock: Who is resilient, who is not?

The war involving Iran has raised concerns that Asia will be among the hardest‑hit regions, due to its dependence on imported energy. Consumers are already feeling the impact through higher fuel and electricity prices. Looking ahead, however, the economic fallout will vary sharply across countries, reflecting differences in energy security, policy tools, and underlying economic strength.

Countries that are better positioned can focus on cushioning the pass‑through of higher energy prices and anchoring inflation expectations. Others, with weaker oil reserves and less economic flexibility, face tougher choices as they seek to limit the drag on economic growth. Within Asia, we see Japan and China as relatively more resilient in managing medium‑term risks linked to the energy shock. Singapore, South Korea, and Malaysia also retain meaningful flexibility, either through access to oil and/or strong policy and economic levers. In contrast, the Philippines, Thailand, India and Indonesia appear more exposed, with higher sensitivity to prolonged energy‑driven pressures.

Presented in order of reliance on Middle Eastern oil, we examine how these economies are equipped to cope with near‑term shocks and longer‑term pressures.

Philippines

The Philippines is highly exposed to the energy shock due to its heavy dependence on imported fuel and limited oil inventory. Higher oil prices have quickly fed through to electricity and transport costs, prompting the government to declare a national energy emergency as households and businesses feel the impact.

The economic consequences are already becoming visible. Measures such as transport subsidies, fare discounts, and emergency support have helped cushion the immediate effects, but demand destruction is emerging. Inflation has pushed above the central bank’s comfort range, forcing tighter monetary policy. With limited progress on renewable adoption and continued dependence on Middle Eastern crude, the Philippines faces a difficult balance between containing inflation and sustaining economic growth if elevated energy prices persist.

Japan

Japan enters the current energy shock with substantial oil reserves. Strategic petroleum reserves exceed six months of consumption, among the highest in Asia, providing a strong shield against short‑term disruptions. Over time, Japan has also reduced its reliance on oil and retains the option to increase nuclear power generation, further strengthening energy security.

Japan is in a relatively strong economic position. After many years of extremely low interest rates, policymakers now have more flexibility to adjust policy gradually if inflation picks up. While Japan remains an energy importer, its deep reserves, diversified energy mix, and policy credibility provide meaningful protection against medium‑term growth and inflation risks. Japanese companies and investors are one of the worlds largest foreign investors and sit on large profits, which also increase Japan’s overall ability to withstand prolonged periods of high energy prices.

Singapore

Singapore’s full reliance on imported energy means that higher oil and gas prices are felt almost immediately, with cost pressures passing through quickly to businesses and households. While the city state has no domestic energy resources, it relies on deep national fuel storage and strict commercial inventory requirements to reduce the risk of physical supply disruptions.

From an economic standpoint, Singapore is better placed than most to absorb these pressures. The Monetary Authority of Singapore’s exchange‑rate‑based framework allows for a stronger Singapore dollar, which helps offset imported inflation and stabilise domestic prices. Large fiscal reserves, a AAA sovereign credit rating, and strong policy credibility further reinforce resilience, giving Singapore room to manage higher energy costs without materially undermining growth.

Malaysia

Malaysia is less exposed to the energy shock than many regional peers due to its position as a small net energy exporter. Higher oil prices can partially offset the fiscal cost of fuel subsidies, even though the country still relies on imported refined fuel for domestic use.

Economically, Malaysia enters this period with solid momentum. Rising foreign investment linked to data centres and Artificial Intelligence (AI)-driven demand is supporting services-sector growth, while inflation remains benign. These factors leave Malaysia relatively well positioned to navigate near- term energy price volatility compared with more import-dependent economies.

South Korea

South Korea faces energy risks primarily through price transmission rather than physical supply shortages. As one of Asia’s largest oil importers, higher global prices raise costs across the economy. However, substantial oil stockpiles - second only to Japan among Asian International Energy Agency (IEA) members - provide a strong near‑term cushion against supply disruptions.

The policy response has focused on limiting the impact on households and key industries. Measures such as fuel price caps and tax cuts have helped blunt the immediate cost burden. More broadly, South Korea’s economy is supported by its role in global manufacturing, particularly in semiconductors and advanced technology, which helps offset energy‑related headwinds and supports overall resilience.

Thailand

Thailand is vulnerable to the energy shock due to its heavy reliance on imported fuel, with higher prices feeding quickly into transport and production costs. Existing fuel‑support mechanisms are already under strain, limiting the scope for further cushioning if energy prices stay elevated.

These pressures sit against a fragile economic backdrop. High household debt, weak lending to the economy, and tight government finances reduce policymakers’ ability to support growth if pressures intensify. This leaves Thailand exposed to prolonged energy‑driven headwinds, particularly if tourism and domestic demand fail to fully recover.

India

India’s exposure to the energy shock stems from its status as one of the world’s largest oil importers, with supply disruptions in the Middle East having relatively quick physical spillovers. Rising energy prices feed directly into transport, fertiliser, and electricity costs, posing challenges for households and agriculture.

Policymakers have moved early to soften the impact, including maintaining access to alternative crude supplies, cutting fuel excise duties, and increasing fertiliser subsidies. Even so, higher energy prices risk widening the current account deficit, lifting imported inflation, and constraining policy flexibility. With parts of the economy already facing pressure, prolonged energy costs could complicate India’s growth‑inflation trade‑off.

China

China faces less immediate pressure from the energy shock thanks to extensive oil stockpiles accumulated during periods of lower prices and large onshore storage capacity, significantly reducing its vulnerability to short‑term supply disruptions.

From a broader economic perspective, China’s diversified energy strategy adds to its resilience. As the world’s largest investor in renewable energy, China has steadily reduced the oil intensity of its growth model. Subdued inflation and pockets of price weakness give policymakers room to absorb higher energy costs. Over time, China’s investment in clean energy infrastructure positions it well to manage both current shocks and future volatility.

Indonesia

Indonesia’s exposure to higher energy prices is felt most strongly through the fiscal channel. While the country has domestic energy resources, fuel subsidies mean that rising oil prices directly increase government spending pressures, heightening concerns around fiscal discipline during a period of policy transition.

There are, however, important offsets. Inflation remains relatively benign, and recent steps to rein in social spending signal an effort to contain budgetary strain. Indonesia’s sizable coal resources also provide a potential backstop, either through energy supply substitution or higher export revenues, should global commodity prices remain elevated.

Asia enters this period of oil price volatility from a position of relative strength, supported by generally healthy levels of foreign‑reserves that can cover months of imports. That said, exposure to the Iran‑related energy shock is far from uniform across the region. China stands out as strategically well positioned, while Japan and South Korea benefit from substantial oil reserves and strong policy credibility. By contrast, parts of ASEAN - particularly the Philippines and Indonesia - look more vulnerable if higher energy prices persist.

Beyond the near‑term cycle, sustained price pressures are likely to accelerate Asia’s energy transition, much as Europe’s response following the Ukraine conflict. Governments across the region are expected to step up efforts to diversify energy sources and reduce external dependence through renewables. In this longer‑term shift, China is particularly well placed to gain, given its scale, policy commitment, and sustained investment in clean‑energy infrastructure.

With teams on the ground in Hong Kong and Singapore and decades of collective experience navigating Asian markets, the First Sentier Investors Asian Fixed Income team is deeply embedded in the region’s macro, policy, and market ecosystem. Our proximity to regional policymakers, market participants, and local liquidity conditions allows us to identify inflection points in Asian rates and currencies that are often missed by offshore‑led strategies. This on‑the‑ground perspective is particularly valuable in periods of heightened divergence, where energy shocks, fiscal constraints, and policy frameworks across Asia drive differentiated outcomes. Through our Global Macro and Rates strategies, including our active approach within the FTSE World Covernment Bond Index framework, we are well positioned to express these views with precision — capturing opportunities across Asian rates, FX, and curve dynamics while maintaining strong alignment with developed‑market benchmarks and risk disciplines.