ASIA: While Asia has suffered the most due to the energy crisis that resulted from the war in the Middle East, a much-syndicated article argues that it may just emerge as a long-term economic winner because the conflict accelerates a number of favourable global trends.

The piece, written by Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former head of Asia-Pacific Equity Research at BNP Paribas Securities, was published by Reuters on April 27.

Asia, which is heavily dependent on energy from the Middle East, has been greatly affected by the closure of the Strait of Hormuz, over which 20% of the world’s energy supply transits. This has caused governments in Asia to scramble to ensure an adequate supply for their domestic needs while contending with significantly higher prices. 

Some countries in Asia have imposed partial work-from-home schedules for government offices, or are cutting down on air-conditioner use amid sweltering summer days, and there have been shortages in fuel stations as well.

Mr Raychaudhuri argues, however, that the fuel shock Asian countries are experiencing may yet result in structural changes that will ultimately be to the region’s advantage.

He enumerated the benefits to Asia resulting from the conflict in the Middle East, starting with an increase in defence and arms manufacturing growth. With the uptick in military spending across the globe, including a higher demand for drones, this will benefit manufacturers in South Korea and other countries with strong industrial and semiconductor bases.

The author also noted that because of Asia’s strength in hardware, the increase in cyberthreats will mean an expansion in the growing cybersecurity sector.

Additionally, because the war in the Middle East has exposed energy vulnerability across the globe, it is likely that the transition to clean energy will be hastened. China, along with other Asian countries, is leading in the field of electric vehicle batteries and other green tech.

Other commentaries have made the same points as Mr Raychaudhuri, particularly when it comes to the speeding up of nuclear and green energy transition. The Institute for Energy Economics and Financial Analysis pointed out that governments in Asia are already treating the crisis as a “wake-up call” to pivot toward domestic energy sources like solar, EVs, and grids.

Related to this would be a supply chain diversification that could result from the war, as the dependence on the Strait of Hormuz exposed another structural vulnerability. This would lead to new infrastructure projects where Asian firms could take a vital part.

Nevertheless, Mr Raychaudhuri pointed out that should the closure of the Strait of Hormuz end up prolonged, this may cause shortages of energy that affect manufacturing in Asia. Furthermore, Western countries could resort to re-shoring production, bringing it back home, and higher costs overall may end up slowing investments in the region. /TISG

Read also: How Asia’s widespread fuel shock will also affect the US

This article (Asia hit hardest by energy crisis but could benefit in the long run) first appeared on The Independent Singapore News.