00:00The Iran conflict is rapidly turning into a global economic crisis.
00:05Energy markets, shipping lanes and international air travel are already feeling the impact.
00:12Farhana Sheh joins me now for more.
00:14Farhana, this escalation is sending shockwaves through the global system.
00:18Where is the impact being felt the most right now?
00:22You're definitely right, Cynthia.
00:23Now, the Strait of Ormuz, one of the world's most critical energy routes,
00:27has become the epicenter of escalating tensions in the Middle East.
00:32Now, roughly 20% of the world's oil and LNG flows through Ormuz.
00:38Within the first 48 hours of the conflict,
00:41brand crude surged from about $67 to about $80 per barrel,
00:46and is now hovering around $84.
00:48Now, analysts warn that if this trade is fully blocked, oil could surge past $100 per barrel.
00:55That would not just raise fuel prices.
00:57And at least one, it would also push global inflation higher by nearly 1%.
01:02That's just oil and energy markets.
01:05Now, if we look at global shipping,
01:07at sea, commercial shipping has already slowed to a crawl.
01:10Major carriers like Merck and Harpag-Lloyd had suspended transits through the Gulf
01:14with hundreds of oil tankers sitting idle near Ormuz,
01:17unwilling to enter what has effectively become a contested zone.
01:20Now, some shipping companies are rerouting vessels away from the area going around Africa and Asia,
01:27adding up to 14 days to transit times and sharply increasing fuel costs.
01:31There's also an active threat going on in Ormuz.
01:34Iran has positioned missiles along its coastline,
01:37with one ship already been hit off the coast of Oman.
01:39And despite the U.S. saying its navy is ready to escort tankers through the strait,
01:44Tehran is about to target any ship attempting the crossing.
01:47So companies are just not willing to take the risks.
01:51Absolutely, Farhana, we're seeing ripple effects are hitting hard,
01:54not just shipping lanes and trading routes.
01:57Tens of thousands of travellers are still stranded across the Middle East
02:00as flights are cancelled, suspended,
02:03and this is largely due to the airspace closures across the Gulf.
02:06So just how severe is the disruption that we're seeing, Farhana?
02:10Right, so if we look at global travel and aviation, right,
02:13on March 1st alone, more than 20% of regional flights were cancelled,
02:18while thousands are more delayed as airlines rerouted around Iranian, Iraqi, and Jordanian airspace.
02:25Major aviation hubs like Dubai, Doha, and Abu Dhabi,
02:29some of the world's busiest transit airports, have seen widespread disruption.
02:34They normally handle about a quarter of the world's long-haul transit traffic,
02:37but that corridor has now been severely disrupted,
02:40pushing up ticket prices on alternative routes.
02:43Now we have seen several global airlines,
02:45including Lufthansa, Singapore Airlines, and KT Pacific,
02:48have also suspended flights to the region.
02:50So this impacts everyone's travel,
02:53either you're travelling from Canada up to Bali, right?
02:56So if you look at that,
02:58we have not, again, just aviation and travel,
03:02it doesn't stop there.
03:03The impacts of the crisis are being felt far and wide.
03:06For the Gulf and Asia,
03:08the economic impacts could escalate very quickly.
03:10Now Dubai, for example, long seen as a safe financial and tourism hubs,
03:15are now facing growing investor anxiety after a two-day shutdown of UAE stock exchanges
03:20and a 4.8% drop in Dubai's market when it reopens yesterday.
03:25Asia is also highly exposed.
03:27Countries such as China, India, Japan, and South Korea rely heavily on energy shipped through Ormos.
03:34If we look at the table here,
03:36Japan and South Korea,
03:37Japan is 95%,
03:39or more than 90% total oil via Ormos,
03:41and so is South Korea,
03:42India, and China, slightly less.
03:44So there's definitely fear of an economic slowdown
03:48if supplies remain disrupted.
03:49The shock has also been amplified
03:52by a halt in Qatar's LNG export,
03:54so removing roughly 20% of global LNG supply overnight.
03:58Gas prices in Europe and Asia have already jumped 40% in just two days,
04:03threatening manufacturing and industrial production across the region.
04:07Now earlier, I talked to Stefan Angrig from Moody's Analytics
04:10to discuss more about Asia's exposure to the conflict.
04:14If you think about how this would impact Asia-Pacific economies,
04:18you can basically think of three groups
04:21because the impact would vary quite a bit across the region.
04:24I would put Asia's high-income economies at the top.
04:27So here I'm thinking of South Korea, Japan,
04:30Taiwan, Singapore, Hong Kong.
04:33Those sorts of economies,
04:34they import more than 80% of the energy they need domestically.
04:39In countries like Japan, Korea, that ratio goes to 90%.
04:43So when energy prices increase,
04:45that tends to raise domestic inflation,
04:47it weakens trade balances, which hurts the currencies,
04:51and it shows up in the economy very quickly.
04:54So that's one reason why we saw these big swings
04:56in the Korean equity market, for example,
04:58over the last couple of days.
04:59So those economies are very vulnerable.
05:02Then there is a second group of economies that are still vulnerable,
05:06but not quite as much as the first one.
05:08And here I'm thinking of China, India, for example.
05:11They are not quite as vulnerable in the sense
05:14that they don't import quite as much energy relative to domestic consumption,
05:18but they do get a lot of the energy that they need
05:21from the region that is affected by the disruptions.
05:24So China, India, they buy a lot of oil coming out of the Strait of Hormuz.
05:28So they have to figure out how to manage the situation now.
05:32They have reserves to tide them over the most significant disruption.
05:36But if this whole thing drags on, they would, of course, be in a pinch, right?
05:40So they would also suffer.
05:43And then there's a third group of economies
05:45that might even benefit a little bit at the margin,
05:47and those tend to be economies that export commodities.
05:51That includes Malaysia, Indonesia, Australia.
05:55Those economies tend to benefit from higher commodity prices,
05:58and commodity prices go, they correlate, so they go up overall.
06:04And when they do go up, that lifts export revenues,
06:07government revenues, et cetera,
06:09which tends to benefit the economy indirectly.
06:12But generally, it's not that big a help
06:14when the rest of the world is suffering.
06:16So, you know, I would perhaps keep the champagne on ice.
06:22Not every country is exposed in the same way
06:25from this conflict, from what we're seeing.
06:27So, Rana, for countries heavily reliant on Middle East energy,
06:32how are they managing the risk?
06:34How should they be managing the risk from here?
06:36Well, Cynthia, Stefan says the assumption now
06:38is that the conflict is temporary
06:40and the impacts should be manageable.
06:42But that said, Stefan did share
06:44how ASEAN economies should navigate this uncertain period.
06:48Let's hear what he has to say.
06:49I think the commodity price shock
06:52certainly increases upside risk for inflation outcomes,
06:55which across Asia are mostly, look pretty contained.
06:58But we know that central banks across the region
07:00are already pretty concerned with weakness of currencies,
07:04with asset valuations.
07:06So now having the potential
07:08for re-accelerating inflation on top of that
07:11would certainly cause them to move cautiously
07:13with regard to a monetary policy change.
07:16The central banks that were looking to ease policy,
07:18they're going to do that more gradually from here on out.
07:20And the same would be true for fiscal policy
07:23to the extent that fiscal policy
07:25can help cushion these sorts of shocks.
07:30Thank you, Farhana, for the latest development
07:32on the Iranian conflict.
07:34We'll be back with more after the break.
07:37We'll be back with more after the break.
07:37We'll be back with more after the break.
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