Middle East Conflict Threatens Asia's Commodity Importers - Moody's Analytics

KUALA LUMPUR, March 2 (Bernama) -- Asia’s high-income economies, which heavily rely on commodity imports, are particularly vulnerable to the direct economic fallout from the conflict in the Middle East, according to Moody’s Analytics.

It said in a statement today that the conflict has led to the closure of the Strait of Hormuz, a major oil shipping route, which raises the risk of further disruptions in the Red Sea and across the wider Middle East for Asia as it buys the lion’s share of oil and gas produced in the region.

“The conflict injects fresh uncertainty into the trade outlook. Although China is a major buyer of Iran’s discounted crude oil, it maintains sizeable reserves that could cushion short-term supply disruptions.

“It also complicates matters for India, which imports large amounts of Middle East oil and has agreed to wind down purchases of Russian oil as part of a trade deal with the United States,” it said.

Moody’s Analytics said Japan, South Korea, Taiwan, Singapore and Hong Kong import more than 80 per cent of the energy they consume domestically, and they also depend heavily on food imports.

It noted that the higher commodity prices would raise consumer and producer inflation, potentially forcing central banks to pause their easing cycles or even raise policy rates and it would also inflate import bills, weakening trade balances.

“As imports become more costly, greater financial outflows would weaken currencies. A broader or more drawn-out conflict would risk increasing the strain on emerging Asian economies that have, in past years, struggled with external debt repayment,” it said.

To recap, roughly a third of global seaborne crude oil exports pass through the Strait of Hormuz, with most volumes destined for large Asian economies such as China, India, Japan and South Korea, and around 20 per cent of global liquefied natural gas shipments also transit the strait.

Brent crude oil prices jumped to around US$80 per barrel in early Monday trading in Asia, up from around US$72 per barrel at the close on Friday, while equity markets slipped in initial trading.

-- BERNAMA