The Guardian: ‘Compound shock effect’: why the Middle East crisis and El Niño could spell disaster in south-east Asia
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Why does this matter so much for Asian economies?
The closure of the strait of Hormuz provided a “stark wake-up call” exposing the region’s vulnerability, according to a report released by the International Energy Agency (IEA) last week.
Before the crisis, 60% of south-east Asia’s imports of crude oil and a third of its imports of gas came from the Middle East, according to the IEA. The region’s energy import bill is projected to reach $160bn this year – double the $80bn bill in 2024. There are predictions it could reach $245bn by 2035.
The region is also dependent on fertiliser imported from the Middle East. The United Nations’ Food and Agriculture Organization (FAO) estimated this month that about 3.3m tonnes of rice production across Asia and the Pacific are already at risk due to reduced fertiliser use.
Higher energy and fertiliser costs are pushing up food prices across the region. For example, in Myanmar the average cost of a basic food basket has increased by 19% since late February, while the price of fish like tuna has surged as many fishermen cannot afford the fuel to take their boats out.
Steven Okun, chief executive of geopolitical strategy firm APAC Advisors, said any fees imposed on transit through the strait will lead to higher prices in Asia.
“Whether it is called a toll or user fee, [it] raises insurance and shipping costs, which flow straight through to fuel prices – and import-dependent economies in south-east Asia will be hit,” Okun said.
