Market Update: Economies in Asia and Pacific highly vulnerable to spillovers of Middle East conflict – ADB – Full Analysis

BAKU, Azerbaijan, March 26. Although Asia and
the Pacific has limited direct trade exposure to Iran and other
countries in the Middle East, economies in the region are highly
vulnerable to spillovers transmitted through global energy markets,
trade and transport networks, and financial conditions, the Asian
Development Bank (ADB) says in its new research, Trend reports.

“The risk extends beyond oil production itself to include
maritime transport through the Strait of Hormuz, a key transit
route for global oil and liquefied natural gas (LNG)
shipments;aviation corridors linking Asia and the Pacific with
Europe; and already strained global shipping routes.

These transmission channels are particularly relevant for Asia
and the Pacific, which is both the world’s largest energy-importing
region and a central hub for global manufacturing and trade (ADB
2026). Asia and the Pacific’s vulnerability to the Middle East
conflict stems in large part from its dependence on imported
energy. The region is home to some of the world’s largest oil
importers— including the People’s Republic of China (PRC), India,
Japan, and the Republic of Korea. Most regional economies are
substantial net importers of crude oil, refined oil products, and
natural gas relative to their gross domestic product (GDP). This
implies that even moderate increases in energy prices can generate
significant income losses,” the report reads.

In late February 2026, Israel and the United States carried out
major air and missile strikes on Iran, prompting a swift response
from Tehran. Iran launched missiles and drones targeting Israel, as
well as U.S. and allied positions across Gulf states and Cyprus.
The hostilities have also extended to Lebanon.

The escalation has inflicted significant damage on the region’s
energy infrastructure. Qatar suspended liquefied natural gas (LNG)
production on March 2, and its facilities were subsequently
attacked, disrupting nearly 20% of global LNG supply—equivalent to
8% of EU imports and 30% of China’s LNG imports in 2025. Saudi
Aramco halted operations at Ras Tanura, the kingdom’s largest
domestic refinery. Meanwhile, two of Israel’s largest offshore gas
fields have been shut down, and production in Iraq’s key oil
fields, including those in Iraqi Kurdistan, has been reduced or
halted.

Maritime traffic through the Strait of Hormuz, the main export
route for Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the UAE, has
sharply declined amid rising insurance costs and heightened
security risks, even without an official closure. Approximately 18%
of the world’s oil production flows through the strait, including
refined products primarily destined for Asia, yet only about a
quarter of this volume can be diverted through alternative ports on
the Arabian Peninsula in the short term.

ADB analysts point out that Asia’s exposure to the conflict is
further underscored by importsource concentration.

“Around 20% of global oil and LNG trade passes through the
Strait of Hormuz, with Asia being the main destination. Japan
sources around three-quarters of its oil consumption from the
Middle East, and high dependence is similarly observed in
Singapore, India, and the PRC. Because crude oil is traded in an
integrated global market, a disruption in the Strait affects all
net oil importers through higher world prices. However, Asia’s
heavier reliance on Gulf suppliers also implies greater short-run
exposure to shipping disruptions, higher transport and insurance
costs, and temporary difficulties in replacing disrupted supplies.
The exposure is similarly pronounced for LNG, as virtually all LNG
transiting the Strait are destined for Asian importers,” reads the
report.

The Bank notes that Strategic petroleum reserves may provide a
short-term cushion to supply disruptions, but adequacy and
coordination constraints may limit effectiveness. Asia and the
Pacific is also exposed to the conflict through its deep
integration into international trade and logistics networks.