Commerzbank analysts Charlie Lay, Dr. Henry Hao, and Moses Lim report that the ongoing war in Iran has delivered a stagflationary shock to Asian economies, primarily due to the region's significant exposure to potential disruptions in the Strait of Hormuz. This conflict has prompted a broad upward revision in inflation forecasts across Asia, while growth risks are now skewed to the downside, with the Philippines and Thailand identified as the most vulnerable economies. Despite these challenges, the AI-investment boom is providing some cushion for major electronics exporters, although these sectors also face direct exposure to the Gulf region through helium and specialty gases [1].
Brent crude oil prices are expected to average around USD110 until May before easing to approximately USD80 in the second half of 2026, according to Commerzbank's base case scenario. This scenario assumes the conflict will de-escalate by the end of May and that passage through the Strait of Hormuz will normalize progressively in the second half of the year. Should the closure persist, however, the economic outlook would worsen significantly [1].
Asian currencies have depreciated by about 2.2% against the US dollar since the end of February, absorbing much of the shock so far, but depreciation pressures remain. Most Asian central banks are expected to keep policy rates on hold, balancing the challenge of rising inflation and fragile growth, with Singapore and the Philippines as exceptions, having already tightened policy. For GDP growth, most forecasts remain unchanged for now, but the risks are tilted to the downside, especially if the conflict and elevated oil prices persist. Notably, China's growth forecast is maintained at 4.0%, which is below the market consensus [1].
The electronics sector, buoyed by the ongoing AI-investment cycle, is better positioned to weather the current shock compared to other sectors. However, the overall economic impact varies across the region, with some economies more exposed to the negative effects of higher oil prices and potential supply chain disruptions [1].
CONCLUSION
The war in Iran has created significant stagflationary pressures for Asia, driving up inflation forecasts and weakening regional currencies. While the AI-investment boom offers some relief for electronics exporters, the overall outlook remains uncertain, especially for vulnerable economies like the Philippines and Thailand. The market impact is high, and future developments will depend on the duration of the conflict and oil price trends.