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- China is less vulnerable to the impact of the energy crisis than its neighbours. Beijing has invested substantially in alternative energy sources and now generates 50% of its electricity from renewables.
- The crisis provides China with the opportunity to expand its reach into Southeast Asian energy markets as the shift towards renewable energy becomes a critical priority for many countries.
Global investor positioning still lags fundamentals in China, despite significant developments in technology, advanced manufacturing and supporting infrastructure.
More than 80% of oil and gas transported through the Strait of Hormuz is destined for Asia1 and the economic fallout from the Iran war has interrupted manufacturing, disrupted supply chains, and unsettled labour markets across the region. How should investors respond to this shift in market dynamics?
Japan imports about 95% of its oil from the Gulf, while South Korea imports about 70%2. While both countries boast strategic oil reserves that provide a temporary buffer, they remain highly vulnerable to the risks of an ongoing energy crunch.
Other Asian countries have adopted crisis measures, such as energy rationing, subsidies, and reduced working hours to alleviate the socio-economic shock. The Philippines – which imports 98% of its oil from the Middle East3 – has declared a state of national emergency. Petrol and diesel prices have more than doubled in the country since conflict began.
A barrel of Brent crude stood at US$98 on Thursday, down from the highs of late March, but still more than 35% higher than the cost of oil before the war began4.
“Energy security is becoming a dominant investment theme as countries reassess their long-term resilience,” says Kunjal Gala, Head of Global Emerging Markets, Federated Hermes. “The geopolitical tensions [as a result of the war] have further encouraged moves to upgrade power grids, develop renewable infrastructure, and electrify economies.”
The MSCI Emerging Markets Asia Index has regained much of the ground it lost since the outbreak of the war (See Figure 1), which highlights the underlying strengths of the region, says Gala. “Vulnerabilities to the energy shock are uneven across various countries, but growth prospects across much of emerging markets remain intact, supported by commodities, manufacturing and domestic demand.”
Figure 1: Have markets become more comfortable with uncertainty?
China’s opportunity
China – the world’s largest importer of energy – is less exposed to the disruptive impacts of the energy crisis than many of its neighbours. Beijing has invested substantially in alternative energy sources and now generates 50% of its electricity from renewables5.
“China is structurally better positioned to handle energy shocks than its peers. High levels of household electrification mean Chinese consumers are far less exposed to oil and gas price volatility than many other Asian economies,” says Gala.
Moreover, the crisis provides China with the opportunity to expand its reach into Southeast Asian energy markets as the shift to renewables becomes a critical priority in the region. The Association of Southeast Asian Nations (ASEAN)6 committed last year to expanding its renewable energy sector, setting a target of 45% renewable energy by 2030. Prior to the conflict, China was investing in hydropower dams, solar farms, and electric vehicle (EV) factories across Southeast Asia, and this trend is only likely to intensify.
President Trump’s erratic statements have dominated market sentiment, further fuelling uncertainty and pushing up the risk premium
“China typically utilises crises as catalysts for strategic acceleration,” Gala adds, citing how Beijing has used trade tensions with the US and the Covid-19 pandemic to sharpen its focus on advanced manufacturing and critical technologies.
“Advanced manufacturing remains China’s core advantage. Outside of leading-edge microchip fabrication, China is competitive or dominant in most critical industrial and technology segments,” he adds, adding that investor positioning still lags fundamentals in China. “Global investors remain underexposed [to China] despite significant developments in technology, manufacturing capabilities and supporting infrastructure.”
EMD: winners and losers
At the onset of the Iran conflict, emerging market debt sold off broadly in line with other risk assets, says Mohammed Elmi, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes. However, as the conflict dragged on, markets have become more discerning, with clear winners and losers coming into focus.
“Oil exporting countries outside the immediate war zone – such as Malaysia, Nigeria, and Angola – stand to benefit from the sharp rise in energy prices. By contrast, net oil importers like Indonesia and Turkey face a higher fuel import bill, increasing pressure on their current accounts and foreign exchange reserves,” Elmi adds.
2 Reliance on Gulf oil exposes South Korea and Japan to looming energy crisis | The Straits Times
3 Marcos promises ‘flow of oil’ as Philippines declares energy emergency – BBC News
4 Bloomberg as at 16 April.
5 How China Became the World’s Leader on Renewable Energy – Yale E360
6 The Association of Southeast Asian Nations (ASEAN) was founded in 1967 to promote economic, political, and security cooperation across Southeast Asia and comprises 11 member states: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, and Timor-Leste.
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Previous Market Snapshot
10 April 2026 – Investor hopes rise on fragile truce
US-Iran ceasefire plan sparks rally, but tensions remain high
27 March 2026 – Testing the resilience of the global economy
Will the conflict accelerate a transition to alternative energy sources?
20 March 2026 – Weighing up the knock-on effects of the Iran conflict
The recent spike in oil and gas prices looks set to have far-reaching consequences, beyond the immediate impact on consumers.
12 March 2026 – Strategic reserves deployed as oil volatility unnerves markets
Oil prices have whipsawed this week as the Middle Eastern conflict threatens to choke global supply, with potentially big knock-on impacts for the global economy.
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