Asia’s economies are at risk of significant impact from the ongoing conflict in the Middle East, particularly with potential disruptions to energy supplies. The International Monetary Fund (IMF) has highlighted that the region is particularly vulnerable due to its heavy reliance on fuel imports from the Middle East.
An IMF official has expressed concerns that a prolonged conflict could lead to slower economic growth, increased inflation rates, and strained external balances for Asian economies. The region’s heavy dependence on imported oil and gas, primarily from the Middle East, exposes it to supply disruptions and price fluctuations.
Krishna Srinivasan, Director of the IMF’s Asia-Pacific department, emphasized the heightened vulnerability of Asia to such shocks compared to other regions. Data from the IMF indicates that oil and gas consumption contributes around 4% to Asia’s GDP, nearly double that of Europe. Additionally, the region’s net imports of oil and gas account for approximately 2.5% of GDP, reflecting its limited domestic production capacity.
Despite these risks, Asia started 2026 on a relatively strong footing, supported by lower-than-expected U.S. tariffs, a robust technology sector, and favorable financial conditions. These positive factors have helped mitigate the impact of escalating energy risks, allowing the IMF to maintain its growth projections from earlier estimates.
Under the IMF’s base scenario, Asia’s growth is expected to moderate slightly from 5% in 2025 to 4.4% in 2026 and 4.2% in 2027. However, if the conflict persists, there is a potential for a more significant slowdown. Srinivasan cautioned that prolonged conflict could lead to a cumulative drop in growth by 1 to 2 percentage points by 2027, resulting in higher inflation rates, weaker growth, and strained current account balances.
The IMF warns that the repercussions extend beyond rising oil prices, impacting various sectors including manufacturing and food production that rely on oil-based chemicals and gas. Inflation in Asia is forecasted to rise from 1.4% in 2025 to 2.6% in 2026, before easing to 2.4% by 2027, primarily driven by increased energy costs permeating the economy.
Central banks in the region are advised to exercise caution and vigilance, closely monitoring inflation trends and being prepared to take action if necessary. With limited fiscal space following pandemic relief measures, any government spending should be targeted towards those in greatest need. Central banks are urged to remain agile in responding to potential inflation risks to prevent expectations from becoming unmoored.
In conclusion, the IMF stresses the importance of a prudent and targeted approach by central banks and governments in navigating the economic challenges posed by the ongoing conflict and energy supply disruptions in the Middle East.