Across Asia, countries already vulnerable to the sustained disruption in energy supplies from the Persian Gulf are also contending with an ominous side effect. Their currencies are being suffocated by a surging dollar.
The war in the Middle East has effectively cut off oil and gas that travel through the Strait of Hormuz, a narrow channel that has become the world’s most dangerous bottleneck.
The fighting has revealed a second painful choke point. About 90% of international trade in goods — including the oil and gas that are skyrocketing in price — uses US currency.
And as often happens in times of global turmoil, investors are taking money out of riskier regions and putting more money into US assets. That is driving up the dollar, which is approaching its highest value against Asian currencies in the past two decades. As a result, many currencies are weakening just when their buying power is most needed.
The combined effect of these pressures has debilitated economies across Asia, where some local energy costs are even higher than global benchmark prices, and stock investors are running scared.
On Monday, India’s main stock index lost 2.5% of its value in the hours before President Trump announced a five-day delay in his plan to bombard Iran’s energy infra — having fallen almost 13% since the war started. Those stock market losses have pulled money out of India, pressing its currency, the rupee, lower. South Korea’s currency, the won, had just matched its lowest-ever exchange rate against the dollar, for the first time since the global financial crisis of 2008.
Both countries have seen some easing of the financial strain in the past few days, keying in on signals that Trump is seeking an off-ramp for the war. But deeper risks have taken root.
In the Philippines, higher oil prices and a weaker Philippine peso present a “double whammy that will double inflation in the coming months,” the IBON Foundation, an economic research group, said. The country’s president, Ferdinand R. Marcos Jr., declared a national energy emergency on Tuesday. The Philippines imports 90% of its oil from the Middle East.
In South Korea, President Lee Jae-myung started a nationwide energy-saving campaign on Tuesday. Nearly 70% of that country’s supply of crude oil passed through the Strait of Hormuz.
The whole world is struggling with the new scarcity of oil, which analysts have estimated to be worse than the 1970s’ shocks.
Even in the United States, which became a net energy exporter during the oil-shale boom, the average gallon of gasoline has climbed to $3.98, more than $1 higher than before the war.
Compare that with what is happening to Asia. First, the shortage of supply is worse. The price of a barrel of Brent crude oil traded across the Atlantic Ocean is now about $100, up from $70 a month ago. But because Asian countries buy so much of their oil from the Middle East, the intense demand for the suddenly smaller supply has driven prices even higher.
The second whammy strikes when those prices are converted into currencies that are shrinking in comparison with the dollar. India’s rupee has been weakening for the past year, even when the dollar itself was shrinking relative to most currencies. One dollar now costs 93.2 rupees, 8% more than a year ago.
So Indian buyers must pay 14,748 rupees to get exactly as much energy as they got for 6,087 one year before the war.
“Having the oil price go up when their exchange rates are already weak is doubly painful,” said Kenneth Rogoff, an economist at Harvard University.
Spending so much on an essential commodity is a cold reality across Asia.
Thailand’s truck drivers, for example, have said they lack diesel, which like gasoline is refined from crude oil and has leaped in price, to drive goods to and from ports.
Thailand’s currency, the baht, had started this year on a stronger footing than India’s rupee. But it has quickly fallen to a 10-month low. Jahangir Aziz, an economist at JPMorgan Chase in New York, said that for any country, “The question is, how do you want to absorb the hit?” Governments and central banks must make decisions that end up determining who is hurt the worst.
The New York Times