Iran Conflict Threatens Asia’s Economy & Stability | US-Israel War Impact

US-Israeli airstrikes have killed Iran’s supreme leader Ali Khamenei and several top officials, but Iran has rapidly replaced them and continues fighting, according to reports emerging Friday. The strikes, part of an escalating conflict between Iran and the US-Israel alliance, have dismantled a key layer of Iran’s power structure in the last three weeks.

Among those killed are Ali Larijani, Mohammad Pakpour, Ali Shamkhani, and Esmael Khatib, with Ali Mohammad Naini, spokesman for the Revolutionary Guards, the latest confirmed fatality, according to state media. Israeli Prime Minister Benjamin Netanyahu stated Thursday that Iran is “being decimated,” while the Israeli army, via its Persian-language X account, described the Iranian leadership as a “house of cards that is collapsing.”

The conflict’s potential to disrupt global energy markets and destabilize the broader region is raising concerns across Asia, where a significant portion of the population and economic activity is concentrated. The “Yuxi Circle,” encompassing East, Southeast, and South Asia and containing roughly 55% of the world’s population, is particularly vulnerable.

Approximately 20 million barrels of crude oil and oil products transit the Strait of Hormuz daily, with 80% destined for Asian markets. While China and India possess substantial domestic coal reserves and are increasing renewable energy production, roughly 50% of their oil and gas imports still flow through the Strait. Thailand relies on the region for about half of its oil supply. However, the dependence is even greater for key US allies in East Asia, with Japan and South Korea sourcing nearly all their energy needs from the Gulf, and the Philippines importing over 90% of its oil from the region.

Benchmark Brent crude is currently trading at $109 per barrel, but Asian buyers are facing significantly higher prices, with Dubai or Oman crude reaching $155 per barrel. Beyond price increases, the conflict threatens to disrupt fertilizer supplies, as roughly 30% of the world’s fertilizer transits the Strait of Hormuz. Urea prices have already risen by a third, potentially impacting farmers’ incomes and food security, particularly in Bangladesh, which relies on the Persian Gulf for approximately 55% of its nitrogen-based fertilizer.

Remittance flows from the Gulf region are also at risk. India, with roughly 9 million workers in the area, received approximately $50 billion in remittances last year. While this represents a relatively small fraction of India’s $725 billion foreign exchange reserves, Pakistan is considerably more exposed, with remittances from the Gulf accounting for more than half of its $40 billion total remittances—roughly twice its $21 billion foreign exchange reserves.

The Indian government has taken steps to mitigate potential fuel shortages, diverting LPG from restaurants to households and prioritizing tankers carrying the fuel, aided by an agreement with Iran to ensure safe passage for these vessels.

The escalating conflict is also prompting a reassessment of security alliances in Asia. The transfer of THAAD air defense capabilities from South Korea to the Gulf has raised concerns in Seoul, given North Korea’s continued belligerence. While South Korea is likely to maintain its alliance with the United States in the short term, the Iran war incentivizes a more nuanced approach, balancing relations with both Washington and Beijing.

India is navigating a complex situation, balancing its growing relationship with Israel against the critical importance of the Gulf to its economic security. The Philippines, meanwhile, is concerned that the US decision to strike Iran, and Iran’s subsequent response, erodes norms of sovereignty and territorial integrity, potentially encouraging further Chinese adventurism in the South China Sea. Despite these concerns, the Philippines is expected to continue strengthening its security ties with the United States and Japan.

The US-Israel war against Iran is forcing Asian nations to confront a complex mix of economic vulnerabilities, domestic political pressures, and security threats, with no clear resolution in sight.