It’s perhaps not surprising that the region that uses the vast majority of the oil that transits through the Strait of Hormuz is most anxious about its closure.
While bountiful US energy supplies give President Donald Trump confidence to call for others to ensure the strait reopens, leaders in Sydney, Seoul and Singapore have no such luxury. Already, there’s a scramble on across Asia to secure alternative — including Russian — supplies and to try to minimize the spike in prices and the blow to households and factories.
There’s a kind of Covid déjà vu emerging where those with the weakest buffers look set to get hit the hardest. In the case of the pandemic, keeping out the virus was the first line of defense for economies in its early days; now, it’s all about reserves and alternatives.
Case in point: China, where vast stockpiles and alternative energy supplies seem to be insulating the economy. A measure of manufacturing activity bumped back into expansionary territory in March even as input prices jumped, leaving its export-fueled strong start to the year intact.
Economies with weaker buffers appear more vulnerable. The Philippines — where a national emergency has already been called — Indonesia and Vietnam led a slide in the S&P Global ASEAN Manufacturing Purchasing Managers’ Index to its lowest figure since last September.
India and most of South Asia is already seeing the war hit their economies.
While there are some beneficiaries — energy producers Australia and Malaysia may gain an edge from higher oil, gas and coal prices — even then there’s a cloud to the silver lining. The Australian central bank has been forced to hammer households with rate hikes to keep inflation in check.
Just like Covid, much will depend on how long the supply shock lasts. But a month in, it’s looking like Asia is again among the first to see the economic fallout. — Malcolm Scott