Major shocks don’t happen in isolation. Like an earthquake followed by a tsunami, the deeper damage unfolds later. It’s the same with the US and Israel’s strikes against Iran. What began as an energy disruption is morphing into a severe and persistent economic shock, especially in the Global South.
At the peak of the crisis, oil prices surged more than 50 percent to $110-116 per barrel before easing slightly to $90-100 after the temporary ceasefire. Liquefied natural gas took an even harder hit, soaring as much as 143 percent to a three-year high.
In Asia, the supply risk is significant because 20 percent of global oil and LNG flows via the Strait of Hormuz to the region. But there is a difference in how the disruption impacts these fuels. Oil is volatile but substitutable, while LNG is the binding constraint, with limited short-term alternatives.
Today, Asian countries are grappling with tightened LNG supply, growing shipping frictions, mounting foreign exchange pressure and damage already locked into the second quarter performance.
Compounding the challenge is Israel’s attack on Lebanon, which has severely strained the fragile United States-Iran peace talks.
With a very fragile 10-day ceasefire in Lebanon, the stakeholders have bought time. If the ceasefire fails or peace proves elusive, the economic prospects of Asia and the world at large are likely to be downgraded further. The risks are on the downside.
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