IMF warns Asia faces outsized growth risk from Middle East energy shock

A prolonged Middle East energy shock could do more than slow Asia. It could push up U.S. inflation, lift shipping costs and strain supply chains for everything from electronics to autos, because Asia sits at the center of global oil, gas and refining networks and depends heavily on imported fuel.

Krishna Srinivasan, the IMF’s Asia-Pacific chief, said the conflict posed an acute growth risk if supply shortages persisted, warning that Asia is more energy intensive than other regions. He said the region had entered 2026 on a solid footing, helped by lower-than-expected U.S. tariffs, a strong tech cycle and loose financial conditions, but those tailwinds were now being offset by the Middle East shock. The IMF’s reference case still sees Asia growing 4.4% in 2026 and 4.2% in 2027, down from 5% in 2025. But Srinivasan said the adverse and severe scenarios could shave 1 to 2 percentage points off growth cumulatively through 2027. “This is a shock, which is going to affect Asia more than other regions,” he said, adding that policymakers should look through it at first but remain “very careful and agile” if inflation expectations start to drift.

The region’s exposure is unusually large. The IMF said Asia consumed about 38% of the world’s oil and 24% of its natural gas, and accounted for roughly 35% of global refining capacity, concentrated in China, India, Korea and Singapore. Oil and gas use exceeds 10% of GDP in Malaysia and Thailand, while net oil and gas imports rise to about 8% of GDP in Singapore and Thailand. The IMF also said the shock could spread beyond energy itself, through fertilizer and petrochemical inputs such as helium and sulfur, widening pressure across manufacturing and food production.

Inflation is already moving higher. The IMF expects Asia’s consumer prices to rise to 2.6% in 2026, 0.4 percentage point above its January forecast and up from 1.4% in 2025. China and India are expected to account for 70% of the region’s growth, which means any disruption to those two economies would carry outsized weight. The IMF also said domestic demand remained uneven, with consumption recovering at different speeds and investment still soft amid uncertainty. The risk is that higher oil and gas prices feed into broader shortages, weakening external balances just as policymakers are trying to preserve growth.

Other forecasters are also marking down the outlook. The World Bank projected East Asia and Pacific growth at 4.2% in 2026, down from 5.0% in 2025, citing the energy shock, higher trade barriers, policy uncertainty and domestic difficulties. The Asian Development Bank projected 5.1% regional growth in 2026 and 2027 under an early stabilization scenario. For now, Asia looks resilient. The IMF’s warning is that resilience can fade fast if the energy shock lasts.