US President Donald Trump says the war on Iran may not last much longer. But across Asia, government actions are racing to shield themselves from the fallout – revealing a region gripped by anxiety that an energy shock could revive the spectre of stagflation.
Under mounting economic pressure and record oil market volatility, Trump said on Monday that the US-Israeli war on Iran could be over “very soon”, though not within the coming week.
The most exposed Asian economies – including South Korea and Japan – are heavily dependent on the Middle East for about 50 per cent of their energy imports, and some are moving to cushion themselves from turbulence.
China, the world’s second-largest oil consumer, has announced its sharpest rise in retail petrol and diesel prices since 2022, while ordering state-owned oil majors to secure stable supplies of refined products and comply with official price controls.
Beijing has spent years building up strategic oil reserves without disclosing their exact size, but Reuters reported on Thursday that analysts estimated the stockpiles at about 900 million barrels – just under three months of imports.
Japan and South Korea are also preparing defensive measures. With oil reserves covering 254 days, Tokyo had instructed national storage sites to prepare for a possible release, local news agency Kyodo News reported on Sunday.
Tokyo previously released oil during the Gulf war in the early 1990s and again following the earthquake and tsunami in northeast Japan in 2011, according to the report.
South Korea, meanwhile, planned to introduce a fuel price cap this week to curb abnormal pricing and stabilise market expectations – a step not taken since 1979 when the Iranian Revolution sent energy prices soaring and paralysed global markets.
Seoul has also announced emergency imports of 6 million barrels of crude from the United Arab Emirates via routes that bypass the Strait of Hormuz, the strategic trade corridor caught in the crossfire of the Iran war.
While the country possessed 208 days’ worth of oil reserves, it sought to diversify its supply through alternative ports, according to The Chosun Daily on Saturday.
“If the rise in oil prices becomes prolonged, the risk of stagflation similar to that seen in the 1970s could increase,” Kim Jin-ill, a professor of economics at Korea University, told the local newspaper.
Other analysts warned of spillover beyond energy security.
“A sustained rise in oil prices squeezes household incomes and increases costs for firms, curbing consumption and investment,” said Gareth Leather, senior Asia economist at Capital Economics, in a note released on Friday.
He argued governments faced a dilemma: inaction risked a sharp spike in inflation that could stifle consumer-driven growth, while intervention through subsidies – as seen in Japan, Malaysia and Indonesia – would widen fiscal deficits.
Beyond higher oil prices and their inflationary impact, Louise Loo at Oxford Economics warned of an even greater risk: disruption to liquefied natural gas supplies.
Given northeast Asia’s heavy dependence on imported gas for electricity, any shortfall could derail the tech-led industrial production now underpinning regional growth, she said in a note on Thursday. -- SOUTH CHINA MORNING POST
