THE LONG TAIL OF WAR
As global energy supplies continue to be affected due to the blockade of the Strait of Hormuz, there is no sugar coating the adverse impact the shock is having on Asian energy importers.
Some markets have seen inflation rates soar, hurting the pocketbooks of the poor, in particular. Other governments have tried to shield their consumers with price controls and subsidies, but those steps have resulting pressure on their fiscal and trade deficits, hurting bond yields and currencies.
Asian policymakers, like their counterparts around the world, are acting to deal with the shock. Besides figuring out an optimal energy pricing policy, measures are being taken to conserve usage and find alternative suppliers.
Even a deal to reopen the strait may not mean that global energy supply and prices would normalise readily. Given the lingering uncertainty about the actions of the various armed actors involved and an undetermined number of mines in the water, safe passage through the strait would remain arduous and risky.
Energy infrastructure damaged across the Middle East will take months, if not years, to be back fully online. With persistent risks of renewed conflict, costs related to the moving of gas and oil products – from insurance premiums to shipping charges – will remain elevated.
As energy prices percolate through the system, second-round inflation effects are also in the pipeline. Combine this with the exceptionally strong demand for electronics and plenty of inflation risks remain on the horizon.
