A sharp rise in global crude oil prices triggered by the escalating conflict involving Iran is likely to create economic pressure across Asia, particularly for large oil-importing economies such as India, Thailand, South Korea and the Philippines, according to a recent analysis by Nomura.

The report said higher crude prices represent a negative “terms-of-trade shock” for many Asian economies that depend heavily on energy imports. However, the broader macroeconomic impact on growth and inflation may remain manageable in the near term due to government intervention in domestic fuel pricing.

“Higher oil prices are a negative terms-of-trade shock for Asia, but with local fuel prices often regulated, the impact on growth and inflation should be manageable,” the report said. It added that “a higher oil import bill is the most potent impact, followed by a higher fiscal burden.”

Will the import bill pressures rise?

The surge in crude prices follows a joint military operation by the US and Israel targeting Iranian military infrastructure, its leadership and nuclear-linked facilities. In response, Iran launched missiles and drones at Israeli territory and US bases across several Gulf states, triggering fears of supply disruptions and pushing up oil prices.

According to the analysis, Asia’s heavy reliance on imported energy means even modest increases in oil prices can significantly worsen current account balances.

On average, every 10% increase in crude prices could weaken Asia’s current account balance by about 0.3% of GDP.

Thailand remains the most exposed economy, where net oil imports account for about 4.7% of GDP. India follows with net oil imports of around 3.1% of GDP, while South Korea’s oil import dependence stands at roughly 2.7% of GDP.

The Philippines is also vulnerable as it already runs a current account deficit that could widen further if energy prices remain elevated.

Inflation risks seen limited for now

Despite higher crude prices, the report suggests inflation across Asia may not rise sharply in the short term.

Energy typically accounts for about 3–14% of consumer price index baskets across Asian economies, and on average every 10% rise in oil prices could add roughly 0.2 percentage points to headline inflation.

However, the actual impact varies widely depending on government policies. Countries such as India and Thailand often use subsidies and price controls to cushion consumers from global price swings.

As the report noted, “EM Asia economies that are most sensitive to the inflationary impact of higher oil prices also use price controls and subsidies that limit immediate inflation, with costs absorbed by fiscal authorities or state oil companies.”

Are inflation risks limited for now?

While inflation may stay contained initially, governments could face rising fiscal pressure if crude prices remain elevated for a prolonged period.

In India, higher crude prices could squeeze the marketing margins of oil marketing companies, potentially forcing the government to intervene if domestic prices are kept stable.

Similarly, countries such as Indonesia and Thailand could see higher subsidy spending or tax adjustments to shield consumers from rising fuel costs.

Central banks across the region are likely to adopt a cautious approach. The report noted that policymakers are expected to remain in a “wait-and-see mode” amid uncertainty over the duration of the conflict and the trajectory of oil prices.

Impact on markets

For financial markets, sustained higher crude prices could weigh on equities in energy-importing economies.

“The duration of the conflict and how oil prices move will be key to monitor for stock investors,” the report said. “A sustained move higher in oil prices would clearly be negative for all stocks.”

However, markets may stabilize if tensions ease quickly. The report noted that geopolitical shocks have often had only temporary effects on equities, citing the brief Iran-Israel conflict in June 2025 when oil prices surged but US equities remained largely resilient.