IMF Warns Mideast Conflict Poses 3 Key Risks for Asian Economies

The International Monetary Fund warns that energy supply shocks from the Middle East conflict are creating significant price and supply chain pressures for Asian economies.

In its April 2026 Asia-Pacific Economic Outlook report, the International Monetary Fund said that rising energy prices have become the primary external shock to the region’s economic outlook. The escalation follows the closure of the Strait of Hormuz in February, a chokepoint for about 20 percent of global oil, which sent West Texas Intermediate crude oil prices surging 8 percent.

"The combined effect of the Middle East conflict and the closure of the Strait of Hormuz may surpass all historical precedents in terms of scope, scale, and breadth of commodities affected," said Zhou Ying, a senior energy analyst at Independent Commodity Intelligence Services (ICIS). "Compared with the two oil crises in the 1970s, today's global petrochemical capacity is far larger."

The immediate impact has been severe. Daily vessel traffic through the Strait of Hormuz plunged approximately 95 percent in March, according to the United Nations Conference on Trade and Development. This disruption caused methanol prices across Asia to soar between 68 percent and 141 percent in early April from late February, hitting record highs in some markets, per ICIS data.

The disruptions create a classic stagflationary dilemma for the region's import-dependent nations. Policymakers face the difficult choice of raising interest rates to fight inflation, which would slow growth, or cutting them to support their economies, which would risk fanning prices further. With no clear path out of the hostilities, the resilience of the global economy faces a tough test.

Petrochemical Supply Chains Face Unprecedented Shock

The conflict's impact extends far beyond crude oil, threatening to reshape global chemical trade flows. The Middle East is a top exporter of key products like polyethylene and liquefied natural gas (LNG), with the Strait of Hormuz serving as the primary shipping artery. "The Middle East is one of the world's two largest polyethylene exporting regions," said ICIS analyst Yu Ting, noting that while alternative routes are emerging, they come with much higher shipping costs.

The LNG market faces a sustained shortage of 12.8 million tons per year after two of QatarEnergy's trains were damaged, with repairs estimated to take three to five years. This has shifted the global natural gas outlook from a surplus to a tight balance, according to analyst Xu Fei.

In response, many Asian importers, including South Korea and Japan, are scrambling to lock in long-term supply agreements outside the Middle East. More than 60 percent of Asia's naphtha imports and 45 percent of its liquefied petroleum gas imports transit the Strait of Hormuz, forcing a major reassessment of supply chain security.

Stagflation Risks Mount as Oil Scenarios Worsen

Economists are now modeling more adverse scenarios where energy prices remain higher for longer. According to analysis by the European Central Bank, a scenario with oil prices peaking at $120 per barrel would tip the euro area into negative growth for 2026. Should the conflict continue for six months, some projections see prices exceeding $200 a barrel as global reserves are depleted.

These scenarios present a perfect storm of contracting output and high inflation that severely constrains policy options. While the Organisation for Economic Co-operation and Development (OECD) held its global GDP growth forecast at 2.9% for 2026, it revised growth down for the euro area and the UK by 0.4 and 0.5 percentage points, respectively.

For Asian economies, sustained uncertainty could suppress downstream industrial demand and slow investment, an effect that ICIS analyst Sun Lijia warned "shapes the operating logic of the global petrochemical industry for much longer" than the conflict itself.

This article is for informational purposes only and does not constitute investment advice.