The New York Times (NYT) reported on the 25th that Asia's economy has fallen into a "double shock" as global energy supply chains shake due to the fallout from the Middle East war. The analysis said soaring crude prices and a strong dollar are occurring at the same time, pressuring the currencies and real economies of major countries such as India, Southeast Asia, and Korea.
The starting point of this crisis is the Strait of Hormuz, the key route for Middle East energy shipments. With the strait effectively blockaded by the war, a red alert has been raised for global supply chains. Brent crude, which was around $70 per barrel a month ago, has now surged to around $100. In particular, Asian countries with high dependence on the Middle East are under greater upward price pressure from reduced supply.
On top of that came a strong dollar. As global uncertainty grew, investors fled risk assets and moved into U.S. assets, pushing the dollar's value to near a 20-year high. With a large share of international trade settled in dollars, the rise in energy prices plus exchange-rate burdens are sharply increasing Asian countries' effective import expenses.
This shock is spreading across financial markets and the real economy. In India, major stock indexes have fallen about 13% since the war, and capital outflows are weakening the rupee. The Korean won has also approached its lowest level against the dollar for the first time since the 2008 global financial crisis.
The higher a country's energy dependence, the greater the hit. The Philippines relies on the Middle East for 90% of its imported oil, raising concerns over surging prices. In a recent report, the IBON Foundation, an economic research institute in the Philippines, warned that "inflation could double in the coming months as rising oil prices and a weaker peso coincide." President Ferdinand Marcos Jr. has declared a national energy state of emergency. Korea is no exception. With about 70% of its imported crude passing through the Strait of Hormuz, President Lee Jae-myung has launched a national energy-saving campaign.
NYT noted that the essence of this crisis is not simply higher oil prices but the combined shock of oil prices and exchange rates. Governments face a choice. If they deploy foreign reserves to defend exchange rates or raise interest rates, an economic slowdown is inevitable; if they allow currency weakness, higher import prices will inevitably increase the public's burden.
The market is also warning that this crisis could escalate into a shock more severe than the oil shocks of the 1970s. Compared with then, global supply chains have become more complex and dependence on the dollar has increased, which could make the speed and scope of the shock's spread greater.
In the long term, questions are also being raised about dollar hegemony. Analysts say repeated dollar strength during crises could shake the very structure of global trade. Kenneth Rogoff, a Harvard University professor, said, "This situation will ultimately raise fundamental questions about whether the U.S. dollar is still a safe haven and a reliable partner."