Escalating hostilities in West Asia risk renewed energy, inflation shocks: Moody’s

Escalating hostilities in West Asia are heightening risks for India and other Asian commodity importers, as military strikes and retaliatory attacks disrupt key energy and trade routes, Moody’s Analytics said on Monday (March 2, 2026).

The United States and Israel launched military strikes on targets in Iran over the weekend. Tehran retaliated with missiles and drones aimed at Israel and countries hosting U.S. forces, including the United Arab Emirates, Qatar, Kuwait, Bahrain, Iraq, Jordan and Saudi Arabia.

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Media reports suggest the conflict has effectively closed the Strait of Hormuz, a key conduit for global energy flows. Roughly one-third of the world’s seaborne crude oil exports and about 20% of liquefied natural gas shipments transit the narrow waterway.

India, the world’s third largest oil importer, imports roughly half of its oil needs through the narrow Strait.

“This (closure of Strait of Hormuz) raises the risk of further disruptions in the Red Sea and across the wider West Asia,” Moody’s Analytics said. “Airspace closures have compounded the strain, affecting passenger travel and cargo flows through one of the world’s most important trade corridors.”

Asia is particularly exposed as it buys the lion’s share of oil and gas produced in the region.

“Roughly a third of global seaborne crude oil exports pass through the Strait of Hormuz, with most volumes destined for large Asian economies such as China, India, Japan and South Korea. Around 20% of global liquefied natural gas shipments also transit the strait.

Brent crude oil prices jumped to around $80 per barrel in early Monday (March 2) trading in Asia, up from around $72 per barrel at the close on Friday, while equity markets slipped in initial trading.

“Higher commodity prices would raise consumer and producer inflation, potentially forcing central banks to pause their easing cycles or even raise policy rates,” it said. “Higher prices would also inflate import bills, weakening trade balances. As imports become more costly, greater financial outflows would weaken currencies.”

A broader or more drawn-out conflict would risk increasing the strain on emerging Asian economies that have, in past years, struggled with external debt repayment, it added.

The conflict injects fresh uncertainty into the trade outlook.

“The conflict complicates matters for India, which imports large amounts of West Asia oil and has agreed to wind down purchases of Russian oil as part of a trade deal with the U.S. — a deal which now sits in limbo after the U.S. Supreme Court struck down US President Donald Trump’s country-based tariffs,” it said.

Although China is a major buyer of Iran’s discounted crude oil, it maintains sizeable reserves that could cushion short-term supply disruptions. Chinese officials have called for an immediate cessation of military operations. But renewed tensions with the U.S. cast a shadow over the upcoming China-U.S. presidential meeting and added uncertainty to their already fragile trade truce, Moody’s said.

Asia’s high-income economies, which heavily rely on commodity imports, are particularly vulnerable to the direct economic fallout from the conflict. Japan, South Korea, Taiwan (China), Singapore and Hong Kong import more than 80% of the energy they consume domestically. They also depend heavily on food imports.

Moody’s said the surge in energy and food prices after Russia’s invasion of Ukraine played a key role in the crises in Sri Lanka, Bangladesh and Pakistan. “A sustained disruption to Gulf oil exports or maritime traffic could revive debt concerns.”

“We are monitoring developments and assessing the implications for our baseline forecast, which we plan to publish next week”, it said.