IMF Warns Asia Is Vulnerable to Middle East Energy Shocks

The International Monetary Fund (IMF) has warned that Asia is more vulnerable to an energy shock than other global regions due to its heavy reliance on fuel imports from the Middle East. Krishna Srinivasan, director of the IMF’s Asia-Pacific department, noted that while the region entered 2026 on a solid footing, a prolonged conflict could trigger an acute hit to economic growth. The region's initial economic resilience was supported by lower-than-expected tariffs from the United States and a strong technology cycle that has boosted exports. However, these tailwinds are being offset by the energy-intensive nature of Asian economies. According to the IMF, the combined use of Brent Crude Oil and Natural Gas amounts to approximately 4% of Asia's gross domestic product (GDP), which is nearly double the level seen in Europe. > "This is a shock, which is going to affect Asia more than other regions." Given its limited domestic production capacity, net oil and gas imports account for about 2.5% of GDP for the region. Srinivasan warned that a lasting conflict would likely result in higher inflation, weaker growth, and deteriorating current account balances. Beyond price hikes, there is a risk of physical shortages in oil-related chemicals and gas used in food production and machinery manufacturing. > "What we’re going to see is higher inflation, weaker growth and weaker current account balances." Under the IMF's reference scenario, growth in Asia is projected to moderate from 5% in 2025 to 4.4% in 2026 and 4.2% in 2027. In more severe scenarios, the cumulative hit to growth could reach 1 to 2 percentage points through 2027. > "If you have a price shock and shortages, that could lead to greater non-linearities, and so the growth impact would be that much more acute, especially if the shock is not transient." Inflation in the region is expected to rise from 1.4% in 2025 to 2.6% this year before potentially easing to 2.4% in 2027. Srinivasan advised that central banks should remain agile and monitor whether inflation expectations become unanchored. > "Asian central banks should look through the shock until there is more clarity on its impact on the economy, but be very careful and agile, so that if you see inflation expectations getting unanchored, you can start tightening." Finally, the IMF emphasized that any fiscal support must be timely and strictly targeted to those in need, especially given the limited fiscal buffers remaining after the pandemic.