Iran war pressures emerging Asian markets, fuels bearish currency scenarios

The Iran conflict is reshaping Asia’s economic landscape, with rising energy costs from a near-blockade of the Strait of Hormuz driving inflation and currency pressures. The Morningstar Emerging Markets Index fell 12.6% in March 2026 as traders reacted to fears of an oil shock, marking a severe downturn linked to disrupted energy supplies. Roughly 20% of global oil passes through the Strait of Hormuz, and East Asia imports 60% of its oil from the Middle East, leaving economies like South Korea, India, and Southeast Asian nations vulnerable to supply chain disruptions. South Korea’s fuel prices have surged 18% above pre-war levels, pushing inflation to a three-month high and straining export-driven industries reliant on imported energy. Higher energy costs widen trade deficits, weakening local currencies and creating a feedback loop that exacerbates inflation. Countries like India and Indonesia, which had signaled plans to cut interest rates, now face delayed monetary easing due to currency depreciation and rising prices. Capital is flowing out of Asian markets toward safer assets like U.S. dollars and Treasuries, further destabilizing currencies. Central banks are forced to maintain tight monetary policies to defend their currencies, contradicting growth-supporting measures. Remittances from Gulf states to South Asia, a critical financial lifeline, are projected to drop by 35%, costing India between $5 billion and $10 billion annually—a blow to households dependent on these funds for basic needs. While emerging Asian economies are better positioned than in past oil crises, the strain on currencies, inflation, and remittances poses significant risks. The conflict’s spillover effects highlight Asia’s exposure to geopolitical disruptions in global energy markets, forcing policymakers to balance stability against economic growth.