New economic reality

Why Asia’s new economic reality is a warning for the world

By Stephanie Yang

In Asia, there are now two economic realities.

The oil shock is accelerating a divergence of economic fortunes across the region. One is driven by tech giants and the promises of artificial intelligence. The other is darkened by fuel scarcity and rising prices that threaten a humanitarian crisis.

As the disproportionate impact of oil shortages in Asia widens the divide, economists warn that the phenomenon has significant ramifications for monetary policy, political stability, and future economic growth across the continent – and other parts of the world that rely on it for trade.

Asia, which is heavily reliant on the Middle East for energy, has borne the initial brunt of higher prices driven up since shipping stalled in the Strait of Hormuz. But the impact isn’t spread evenly.

Advanced, tech-heavy economies in East Asia like Japan, South Korea and Taiwan have bigger fuel reserves to draw on, as well as the cash to pay higher prices to secure more stocks.

Meanwhile, nations like India, the Philippines and Thailand, whose growth is dominated by traditional manufacturing and services, are facing greater struggles to secure fuel and offset slowing economic activity.

The stark contrast has become known as the “K-shaped economy.” The term refers to a steepening deviation between upper and lower economic classes, popularized after the Covid-19 pandemic disproportionately hit underprivileged groups. Economists said the war in Iran is having a similar effect.