IMF says Asia is vulnerable to Middle East energy shocks

The International Monetary Fund (IMF) has warned that Asian economies are significantly more vulnerable to energy shocks than other regions due to their heavy reliance on fuel imports from the Middle East. Krishna Srinivasan, director of the IMF’s Asia-Pacific department, stated that while the region entered 2026 on a solid footing, a prolonged conflict could trigger acute hits to growth. This stability at the start of the year was supported by lower-than-expected tariffs from the United States, a strong technology cycle boosting exports, and loose financial conditions. However, the region's energy-intensive nature remains a primary concern. The consumption of Brent Crude Oil and Natural Gas represents approximately 4% of Asia's gross domestic product, which is nearly double the level seen in Europe. > "This is a shock, which is going to affect Asia more than other regions." Srinivasan noted that the fallout would likely manifest as higher inflation, weaker growth, and strained current account balances. Under the IMF's reference scenario, growth in Asia is expected to slow from 5% in 2025 to 4.4% in 2026 and 4.2% in 2027. In more severe scenarios, growth could drop by an additional 1 to 2 percentage points cumulatively through 2027. The conflict could lead to both price surges and physical shortages of oil-related chemicals and gas used in manufacturing and food production. Thailand Finance Minister Ekniti Nitithanprapas echoed these concerns, noting the severe impact on net energy importers and the potential for damage to critical Middle East infrastructure. > "I am quite concerned this will not end soon." The IMF projects that inflation in Asia will rise to 2.6% this year from 1.4% in 2025. Central banks have been advised to remain agile and monitor whether inflation expectations become unanchored. Srinivasan also emphasized that fiscal support must be timely and targeted to those in need, rather than broad-based. > "Let me note that broad fuel subsidies, tax cuts, and general price caps may smooth inflation in the short run, but they are costly, distortionary, often regressive, and hard to unwind."