The ViewWhy Asia’s crisis-hardened hotel sector can withstand Iran war shock

As the war in the Middle East enters its third week, hopes for a swift end to the conflict have evaporated. Assessments of the economic consequences are much more dire than they were even a week ago.

In a report on March 12, the International Energy Agency said the war “is creating the largest energy supply disruption in the history of the global oil market”. Iran’s de facto closure of the Strait of Hormuz – a critical maritime chokepoint that handles around one quarter of global seaborne oil trade – has led to an acute shortage of products such as diesel, jet fuel and liquefied petroleum gas “that cannot be consumed simply because they are not available”, JPMorgan said.

Asia’s economies are bearing the brunt of the supply disruptions given their heavy reliance on energy imports from the Middle East. Before the war erupted, the region imported about 13.2 million barrels of oil a day through the Strait of Hormuz, amounting to half of Asia’s total crude imports. “A central question is how long importers can sustain fuel supply before shortages deepen,” JPMorgan said.

Asian airlines are at the sharp end of the energy shock because of their failure to adequately hedge against rises in oil prices, much less against increases in fuel costs, which account for around 20 per cent of airlines’ operating expenses. This has forced carriers to raise ticket prices and increase fuel surcharges across a range of routes.

With the rise in the price of jet fuel far outpacing the increase in oil prices, the prospect of much sharper rises in airfares – driven in part by the surge in demand for long-haul flights that bypass the Middle East – heightens the risk of a renewed downturn in tourism.