Energy shock and market impact: Asia under pressure

The Philippines recently became the first Asian country to declare a national energy emergency as a result of the Iran conflict, highlighting the disproportionate risk faced by markets in the region.

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‍On 24 March, the Philippines declared a state of national energy emergency, becoming the first country to formally activate emergency powers in response to the Iran conflict. Manila’s response is the most visible expression yet of a dynamic playing out across the region. Several other nations in the region have now been forced to implement measures aimed at reducing energy consumption and managing costs for consumers and businesses.
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Why Asia bears the disproportionate weight
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The United States and much of Europe are partially insulated by domestic production and geographic distance from the Strait of Hormuz. Asia is in a fundamentally different position. The region accounts for roughly 44 per cent of the world’s crude imports, while approximately 80 per cent of the oil that transits the strait is bound for Asian markets. The Philippines imports around 90 to 98 per cent of its oil from the Middle East; South Korea sources around 70 per cent via the strait. Oil prices delivered into Asia now sit at meaningfully higher levels than those facing Western consumers, and the gap is widening.

The International Energy Agency has described the current crisis as surpassing the combined effect of the energy shocks of the 1970s. Those shocks gave rise to stagflation: the toxic combination of stagnant growth, elevated unemployment and persistent inflation that conventional monetary policy cannot easily address. The conditions for a repeat are present.
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Rate cuts are off the table

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At the start of this year, markets were pricing in a broad easing cycle. That narrative has been overtaken by events. Central banks facing surging energy prices cannot ease policy without risking a re-acceleration of inflation. The debate has shifted from how many cuts to expect to whether rates will hold or move higher. Australia has already hiked into this environment. The anticipated soft landing has been undercut, and the conversation has moved from slowdown watch to recession watch.
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Beyond oil: the cascading effects
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This is not simply an oil price story. LNG by-products feed into fertiliser production and food supply chains, adding a second dimension to the inflationary pressure. Naphtha, critical to plastics manufacturing, is already attracting export restrictions across the region. Construction costs are rising sharply as oil-derived inputs, including plastic piping, insulation and synthetic compounds, become more expensive. Airlines across Asia have suspended or curtailed routes. Manufacturing supply chains for electronics, automotive and textiles face growing uncertainty.
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What this means for cross-border flows
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‍‍‍For businesses and investors managing cross-border exposures across Asia-Pacific, several dynamics warrant close attention.

• Currency volatility will remain elevated across energy-importing economies. The Philippines, South Korea, Thailand and Vietnam are particularly exposed, with current account pressures creating structural headwinds for their currencies and direct implications for FX hedging and transfer timing.
• Businesses with supply chains that traverse the Gulf, or that source oil-derived inputs, should model scenarios in which the current disruption persists for twelve months or more. Plans built on rapid normalisation are likely to prove too optimistic.
• Complex currency corridors involving Middle Eastern markets or regulatory restrictions on FX movement require specialist execution. The range of affected corridors is wider than many treasurers initially assume.

The Philippines’ energy emergency is a signal. Southeast Asia’s thinner strategic buffers mean the region will experience the full weight of this disruption before larger economies do. The question for businesses, investors and policymakers is not whether the effects will be felt, but how prepared they are to navigate them.

At APA, we are seeing these pressures translate directly into client flows across our global platform. Treasurers we’re engaged with are reassessing strategic initiatives that have been in place for last several years, hedging strategies need to adopt, corporates with supply chains that cross the Gulf are stretching payment timelines and family offices are looking more carefully at currency exposure across Southeast Asian markets. If you would like to discuss how to manage your cross-border flows in the current environment, we would be glad to help.