ADB Economist Urges Asia to Stabilize Exchange Rates Amid Hormuz Crisis

In a social media post, Park noted that policymakers in Asia should prioritise stabilisation rather than suppressing price signals as geopolitical tensions continue to disrupt global energy markets.

He said shielding consumers from higher domestic energy costs through price controls or broad subsidies could distort market incentives and weaken efficient resource allocation.

He suggested "Policies should focus on stabilization rather than suppression of price signals... Central banks should prioritize exchange-rate smoothing and liquidity provision before tightening monetary policy aggressively... Fiscal measures are likely to be most effective when targeted toward vulnerable households rather than broad energy subsidies... Authorities should also monitor aviation and shipping indicators alongside oil prices"

ABD Economist noted that central banks should focus on smoothing exchange-rate volatility and providing liquidity before tightening monetary policy aggressively, especially when inflation pressures originate from external shocks such as rising oil prices.

Excessive or premature tightening could amplify growth headwinds and increase financial volatility.

Park also suggested that fiscal support should be targeted toward vulnerable households rather than broad energy subsidies, which could weaken fiscal balances without effectively addressing price pressures.

He added authorities should also closely monitor aviation and shipping indicators along with oil prices, as logistics disruptions could provide early warning signs of wider economic impacts.

Asia is particularly vulnerable to developments in Middle Eastern energy markets because most economies in the region are net importers of oil and natural gas.

Net energy imports exceeded 2 per cent of GDP in many Asian economies during 2022-24, meaning even moderate increases in oil prices could affect inflation and household incomes.

The Strait of Hormuz remains a critical chokepoint for global energy supplies. About 20 per cent of global seaborne oil and liquefied natural gas (LNG) passes through the Strait.

Since the start of the conflict, Brent crude prices have risen by roughly 11 per cent to around USD 83 per barrel on 6 March.

Large Asian economies, including Japan, the Republic of Korea, India, and the People's Republic of China, remain highly exposed to Middle Eastern energy developments due to their dependence on imported crude oil.

Emergency oil reserves also play a key role in determining vulnerability. Japan and the Republic of Korea meet the International Energy Agency's 90-day stock requirement.

China holds roughly 401 million barrels of reserves, providing 3-4 months of cover, while India's stockpile of about 100 million barrels offers only 40-45 days of supply, leaving it especially vulnerable to disruptions in the Strait of Hormuz.

- ANI