Conflict in Iran

The conflict in Iran and subsequent closure of the Strait of Hormuz have led to the largest oil shock in history, with the global supply dropping around 10 million barrels per day (MMb/d), nearly 10%. For many Asian countries, the situation is deteriorating rapidly. The situation was already worrisome but is now becoming critical. Smaller economies like Sri Lanka and Bangladesh, which are heavily dependent on Middle Eastern oil, have already begun rationing fuel.

And while larger economies can tap into their strategic reserves to avoid such measures for now, they’re still deploying other strategies. China, for example, has restricted its fuel exports, and India is negotiating with Iran for safe passage through the Strait of Hormuz. Despite these efforts, the conflict will likely have a substantial impact on real GDP growth; we expect it to slow by several tenths of a percentage point. The surge in energy prices is eroding household disposable income and reducing corporate profit margins. If the situation persists, these disruptions could affect the global economy, much like the pandemic or the oil shock caused by the war in Ukraine.