War in the Gulf, effects on Asia

• Pivot to Asia Asia · Energy and Sustainability · Geoeconomics
  by Filippo Fasulo, Paola Morselli, Guido Alberto Casanova and Michele Danesi
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The US-Israeli strike on Iran and Tehran's retaliation have further destabilized a Middle East already strained by conflict and chronic tension. This escalation, however, carries more serious implications for Asian economies than previous crises. The confrontation has directly affected the Strait of Hormuz - the strategic chokepoint through which roughly a fifth of global oil production transit through, as well as around 33% of fertilizer global trade. Governments across the region reacted with speed, alarmed by the prospect of disrupted energy supplies and renewed stress on trade corridors. The repercussions extend far beyond China, touching every major Asian economy that depends on stable maritime flows between the Gulf and the Indo-Pacific. At the same time, this strategic environment has become harder to navigate. Washington's posture appears increasingly unpredictable, and the possibility of abrupt policy shifts complicates long-term planning for governments that rely on the United States for security guarantees but depend on open trade with multiple global partners.

Why it matters

1. Worries from the war. Asian governments have reacted quickly to the Middle East war, worried about disruption of energy and commercial channels. China has expressed a restrained response to the war. Still, Foreign Minister Wang Yi said that the conflict "should not have happened," reflecting Beijing's frustration with the US as the crisis threatens its energy security and complicates the already delicate planned meeting between Xi Jinping and Donald Trump later this month. New Delhi has avoided explicitly condemning the breach of Iranian sovereignty and currently faces a unique constraint with over 9 million Indian citizens working in the Gulf, making stability a top priority. Japan and South Korea have taken a more pragmatic approach, careful not to appear detached from the US - fundamental economic and military partner - while also hoping for a swift stop to the conflict to avoid disruption of key energy supplies from the Gulf. In Southeast Asia, the ASEAN bloc issued a joint statement calling to stop the conflict. The position of Indonesia is emblematic: the country is part of Trump's Board of Peace, but after the US strike on Iran, domestic pressure mounted sharply and Jakarta reconsidered its adhesion to the forum, showing the growing challenges of staying politically aligned with Washington following the attack.
2. Energy supply at risk for the whole region. A vast share of global energy flows through the Persian Gulf, and around 80% of these flows are directed toward Asia. China alone imported in 2024 roughly 11 million barrels per day, almost half of which originate in the Middle East, and it absorbs nearly 90% of Iran's oil exports. But China is not the only country highly exposed: South Korea, Japan, India and Singapore all depend heavily on supplies that transit this narrow corridor. Japan imports 95% of its crude oil and about 11% of its LNG from the Gulf, while South Korea relies on the region for about 70% of its oil supply. Prolonged disruption to maritime traffic will reverberate far beyond higher fuel prices or the drawdown of strategic reserves, undermining energy-intensive industries across Asia, driving up production costs and straining global supply chains.
3. Not only oil. Other commodities are equally affected: for example, the Arab Gulf countries are among Asia's top suppliers of fertilizers, while Bahrain and the UAE provide significant shares of the aluminum imported by China, Japan and South Korea. Longer shipping routes and greater security risks would quickly drive the price of these inputs, which would then strain strategic sectors such as electronics, automotive, battery production, chemicals and agribusiness. Indeed, technology supply chains are particularly vulnerable. For example, tech giants Taiwan and South Korea depend on critical inputs - specialty gases, chemical compounds and industrial metals - that originate in or transit through the Middle East. Persistent price increases would affect the production of semiconductors, displays and electric vehicles.
4. The Russian advantage. China and India possess a significant strategic advantage: both can partially offset disruptions in Middle Eastern supplies by expanding energy imports from Russia. Discounted Russian crude, rerouted maritime flows and diversified corridors allow Beijing and New Delhi to cushion supply shocks and contain price volatility. Most other Asian economies lack such alternatives. Japan, South Korea and many Southeast Asian countries remain heavily dependent on maritime energy flows from the Gulf and have limited access to substitute suppliers at similar scale and cost.

OUR TAKE

Beyond the economic costs and the pressure on commodity availability, what is emerging most clearly in Asia is a sense of fatigue toward a distant war whose burden is global, but whose stakes feel primarily regional - if not national - as was already the case for many Asian countries with the war in Ukraine. Frustration is mounting over conflicts driven by external powers, and irritation toward Washington is growing, as many governments in the region - generally inclined toward pragmatic foreign policy - find it increasingly costly to remain aligned with Trump's United States. At the same time, among countries such as Japan and South Korea, worries are deepening about the credibility of US defense commitments in the Indo-Pacific: if Washington stays absorbed by the Middle East front, many fear that China could gain greater room to maneuver, reinforcing concerns about a weakening US deterrent posture in the region. This uncertainty amplifies regional anxiety: Asian countries find themselves squeezed between the economic costs of a distant war, the accelerating influence of alternative power centers and mounting domestic political pressures linked to inflation and energy vulnerability.

SPOTLIGHT: Pakistan-Afghanistan war fosters regional uncertainty in South Asia

While the whole world's attention remains fixed on the escalating crisis in the Middle East, at the end of February, tensions between Pakistan and Afghanistan seem to have picked up from where they left last October. After months of protracted violence on the shared border - as the ceasefire mediated by Qatar and Turkey in November 2025 did not hold for too long -, a full-fledged conflict broke out once again. Islamabad launched airstrikes against what it described as secret military posts used by terrorist groups responsible for multiple attacks in Pakistan, such as Tehreek-e-Taliban Pakistan (TTP) and the Islamic State-Khorasan (ISKP). After retaliatory Taliban drone operations and armed clashes, an airstrike campaign targeting major Afghan cities, including Kabul and Kandahar, was carried out under the name "Ghazab Lil-Haq" (Righteous Fury). On Monday, March 9, Pakistan reported 583 victims from the Afghan Taliban forces, to which the UN adds 56 deaths and 129 injuries among civilians since February 26. Islamabad's long strategy of supporting the Taliban has not paid off: since they returned to power in 2021, Taliban went from an ally capable of providing Pakistan with "strategic depth" to becoming a source of instability by sheltering and supporting the armed groups that the Pakistani government is trying to fight. Other than doubling down on regional uncertainty, especially with the ongoing crisis in Iran, this conflict puts on hold - and risks to delete - some key connectivity and energy infrastructure projects, such as the extension of the China-Pakistan Economic Corridor to include Afghanistan, the "Central Asia-South Asia 1000" electricity grid, as well as the Iran-Pakistan and Trans-Afghanistan gas pipelines.

EXPERTS' VIEWS

How is the war in the Middle East impacting Japan?

The ongoing war in the Middle East primarily concerns Japan from an energy security perspective. While the government maintains that it has sufficient stockpile of crude oil (some 254 days' worth), a prolonged conflict would affect energy prices and exacerbate the inflation problem Takaichi promised to tackle during the election in February. The government has already decided on March 11 to release a months' worth of national stockpile ahead of the IEA's decision to carry out large-scale stockpile release to calm markets. At the same time, this reality will accelerate Japan's efforts to diversify energy sources and seek to raise the self-sufficiency rate. The pace at which these moves will have implications on how Takaichi's growth strategy proceeds, as the government plans to set ambitious targets in the summer for AI robotics and other critical sectors that will require enormous amounts of energy to pursue. e

Rintaro Nishimura, The Asia Group

What is the main effect of the war in the Middle East on China and East Asia's energy markets?

Escalating US-Iran tensions are embedding a geopolitical risk premium into China and East Asia's energy markets, transforming maritime supply threats into a downstream economic stress test. The region's downstream sectors remain heavily reliant on imported crude, meaning shipping disruptions and higher freight and insurance costs amplify knock-on effects across manufacturing, transport and agriculture. Furthermore, the shock is reinforcing a dual-track energy strategy across East Asia, pairing transition with stronger supply security. While governments continue scaling renewables and electrification, the need to safeguard energy system means expanding whatever is commercially and technically viable, from LNG contracting and alternative fuels to nuclear restarts and coal utilization. Supply diversification has become increasingly urgent for Asian countries as Gulf instability and renewed competition with European buyers tighten LNG markets. Over time, the case for US LNG and Russian energy in East Asian portfolios will strengthen, gradually redrawing the region's supply map away from Gulf dependence.

Kaho Yu, Verisk Maplecroft

WHAT AND WHERE

China's Two Sessions lower GDP target but keep emphasis on innovation, self-reliance and domestic demand

Between March 4 and 5, China's National People's Congress (NPC), the main parliamentary body of the country, and the National Committee of the Chinese People's Political Consultative Conference (CPPCC) have inaugurated their annual meeting. The gathering focused on analysing the annual Government Work Report, approving yearly growth target and endorsing the 15^th Five-Year Plan, presented during the Fourth Plenum of October 2025. The GDP growth target for 2026, previously envisioned "around 5%", has been lowered to 4.5-5%, while other indicators such as fiscal deficit (4% of GDP), CPI target (around 2%) and urban unemployment rate ceiling (around 5.5%) remained steady. The Five-Year Planremains continues to focus on China's push for high-quality development and on strengthening economic self-reliance, while fostering domestic consumption. Among the initiatives included in the Plan is for example the "AI Plus Initiative" - which aims to integrate AI into 90% of national economy by 2030 - as well as increasing the share of non-fossil energy consumption to 25% (21.7% in 2025). Overall, this year's Two Sessions confirms that, despite difficulties forcing the government to lower growth target, Xi's administration is not going back to focusing principally on exports. While measures to stimulate domestic demand will likely be implemented, scientific and technological innovation to boost industry remain the strategic focus of China's economic plan.

Nepal's 2025 protests followed through: historic elections won by former Mayor of Kathmandu

On Thursday, March 4, Nepal's citizens went to the polls for the snap elections called by the caretaker government of Sushila Karki, the first since the previous administration was ousted in a popular protest in September 2025. The outstanding victory in the House of Representatives - the Parliament's lower house - went to the Rastriya Swatantra Party (RSP) with 182 seats won over the total 275. The party is led by charismatic 35-year-old former rapper and Kathmandu Mayor Balendra Shah, also known as Balen who is now set to become Prime Minister. His major political achievement lies in overthrowing the triad of political leaders that represented the past 10 years of Nepali politics: the communist parties of Khadga Prasad Sharma Oli and Pushpa Kamal Dahal and the centrist Sher Bahadur Deuba. Sharma Oli's Party arrived second in the direct-elected seats, only securing 18, and he lost the direct confrontation with Balen, who decided to run in his same constituency in the Jhapa district, symbolizing an open challenge between the old and new generation of Nepali politics. The vote represents a massive wave of popular dissatisfaction with the previous establishment, but the RSP in now called to act swiftly and maintain the positive electoral momentum won among younger generations, despite its recent emergence and moderate experience on the national political scene.

Vietnam is ready for the polls after To Lam confirmation as Party Secretary

Sunday, March 15, Vietnamese are headed to the polls for the 16^th legislature of the National Assembly, the unicameral 500-member legislative and executive house that constitutes the highest organ of power in the country. Although the electoral process is technically open to all eligible citizens over 21, in practice, the seats are reserved for candidates affiliated with or approved by the Communist Party of Vietnam (CPV), which remains the country's sole legal political party. As a result, the vote is widely expected to consolidate the political dominance of the party. Thus, all seems ready for the re-election of To Lam, who recently obtained a second mandate as the Party's Secretary General during the CPV National Congress in January 2026. Since 2024, when he became country leader, To Lam has engaged domestically in establishing a "new era of development", with the aim of improving the country's telecommunications, transport infrastructure systems and boosting national economy. In foreign policy, he has reinforced Vietnam's "bamboo diplomacy" approach, strengthening bilateral ties with major powers - including the acceptance of Trump's invitation to his Board of Peace - and reviving several long-delayed economic agreements with China. Despite its predictable electoral outcome, the vote offers useful insights to assess Vietnam's political consolidation under Tô Lâm's leadership. As Vietnam continues to emerge as a key manufacturing hub, the post-election agenda will signal how Hanoi intends to balance regime stability and strategic autonomy in an increasingly polarized world.

Kim Jong Un shows confidence at North Korea's party congress

North Korea just concluded its 9th party congress, the event whereby every five years the Workers' Party of Korea reconfirms its leadership and establishes its main policies. The congress, which is the most important political recurrence in the country, did not produce major breakthroughs apart from reviewing North Korea's nuclear doctrine or cementing the centrality of Kim Jong Un's powerful sister. Greater expectations were concentrated on foreign policy themes, amid sustained efforts from the new South Korean President Lee Jae-myung to restart dialogue and speculations over Donald Trump's possible re-engagement. As reported by the local press, Kim has expressed disinterest in any kind of overture and emphasized North Korea's nuclear status as fundamental for "maintaining regional stability". He labelled Lee's goodwill gestures as "deceptive", coherently with North Korea's hardened hostility towards the South, but left the door open for future talks with Trump saying that there is no reason the two countries should not get along if the US drops its hostile policy. The US State secretary Marco Rubio replied promptly that he is always open for talks, and the Foreign Ministry of South Korea expressed its support for resuming US-North Korea dialogue, but it is unlikely that discussions may yield any result at this stage. In recent years, Kim has become much less isolated internationally as he has boosted ties with Russia and restored relations with China. The purpose of resuming talks with Trump - last interrupted in 2019 - would be to seek US recognition for his regime as a legitimate nuclear power, something that neither Trump nor Lee is willing to accept.

TREND: India and China's population trajectories in 2050

The graph compares demographic trends in India and China between 2025 and 2050, highlighting patterns of population aging and decline. Data shows a projected increase in the numbers of the elderly in both countries (+139 million in India, +128.4% compared to 2025; and +179 million in China, +84.5%) and a decrease in younger people (-55 million in India, -15.6%; and -93 million in China, -42.6%). The two Asian giants diverge sharply in the evolution of their active population, estimated between 15 and 64 years of age. In India this will increase by 132 million people (+13%), while in China it will decrease by 241 million (-24.5%), constituting an inversion of the current situation. In 2025, the ratio between the inactive and active people was 46.1% for India and 43.5% for China. In 2050, Beijing is expected to skyrocket to 69.1% against the 48.1 of New Delhi, signalling a troublesome level of shrinking labour force and potential pension and healthcare pressure, particularly in China. Public debate in both countries is reflecting the worries underscored by this trend. China has introduced government measures to incentivize an increase in new births - though with little success, as a result of decades of restrictive population policies. In India, meanwhile, media outlets have recently started to publish studies and commentaries on the declining fertility rates, warning that the country's demographic advantage may narrow over time.

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