Energy crisis dashes global economic outlook

Rachmat Mulyono and Irna Suryat, a married couple running a small noodle stall in Tangerang, Indonesia, said they have felt the impact firsthand, with oil prices surging and everyday essentials becoming more expensive.

"The surge in oil and commodity prices has driven up the cost of ingredients, raising the expenses of running our stall. Meanwhile, higher prices for basic necessities have put additional strain on our household budget, making it harder to make ends meet," Mulyono said.

As the Indonesian government considers work-from-home measures to conserve energy, street vendors are feeling the impact firsthand, with fewer regular customers and dwindling foot traffic cutting into their daily income.

This situation is not unique to Indonesia. Amid an energy crunch, many countries have taken steps to cope. Thailand has asked civil servants to conserve energy by pausing overseas travel and using stairs instead of elevators, while Bangladesh has closed universities.

Elsewhere, India has instructed its refineries to prioritize the supply of liquefied petroleum gas to households over commercial establishments. Pakistan, Egypt, and Vietnam have increased fuel prices and implemented energy-saving measures.

Since the conflict in Iran began on Feb 28, the Strait of Hormuz, a critical artery for global energy supplies located off the coast of Iran, has emerged as a major hot spot.

Iran has restricted vessels linked to nations responsible for the conflict from passing through this strategic channel, where roughly one-fifth of the world's oil and LNG shipments make their way to global markets.

Kemas Muhammad Ramadhan, a computer engineer in Jakarta, has begun to feel the strain in everyday life, especially when it comes to energy-related essentials.

"Subsidized cooking gas — once easy to find — has become increasingly scarce. The familiar green government-subsidized canisters are often nowhere to be found, forcing me to search from shop to shop," he told China Daily.

He said that if fuel prices continue to climb, he may switch to a bicycle and rely more on public transport, especially electric options, in the hope of shielding himself from rising costs.

"I am also tightening my budget, cutting back on small daily expenses like buying coffee and bracing for further increases in essential items such as rice and cooking gas," Ramadhan said.

Earlier this month, the International Energy Agency took a decisive step by committing to release a historic 400 million barrels of oil from emergency reserves to stabilize supply chains and mitigate price hikes.

However, industry experts have warned that the volume represents only about 20 days' worth of global energy supplies.

"The global economy is facing a major, major threat today," said Fatih Birol, chief of the agency, on Monday. "No country will be immune to the effects of this crisis if it continues to go in this direction. So there is a need for global efforts," Birol said.

Rising energy prices and supply constraints may dent production of nonessential goods and services, which will add to the challenges faced by policymakers, including central bankers, Akrur Barua, associate vice-president at Deloitte Services India Pvt Ltd, said in an analysis.

Food security

Moreover, the conflict has significantly disrupted global fertilizer markets, raising concerns over global food security. Around one-third of global supplies that normally transit the Strait of Hormuz are now stalled. US farmers have already been reporting empty shelves ahead of the spring planting season.

If the conflict lasts just a few more weeks, global food supplies will be significantly disrupted, said Maximo Torero, chief economist of the Food and Agriculture Organization of the United Nations.

"This will affect planting. There will be a lower supply of commodities in the world — of staple cereals, of feed, and therefore of dairy and meat," he said.

A more severe escalation, particularly one involving prolonged disruptions to the Strait of Hormuz, could have more significant consequences.

"Sustained disruptions could push oil prices much higher, weaken global trade, and slow economic growth," said a recent report by the Asian Development Bank.

The World Trade Organization also said on March 19 that if oil and gas prices remain high for the rest of the year, it could reduce the predicted 2026 growth in global GDP by 0.3 percent.

Potential spillovers

"Sustained increases in energy prices could increase risks for global trade, with potential spillovers for food security and cost pressures on consumers and businesses," said WTO Director-General Ngozi Okonjo-Iweala.

The sharp rise in prices of crude oil and refined products has had far-reaching implications for the global economy, said Ding Long, a professor at Shanghai International Studies University's Middle East Studies Institute.

He noted that higher oil prices have driven up the cost of key raw materials, including plastics, fertilizers and rubber, raising production costs. As these increases are passed on to consumers, purchasing power declines, demand weakens, and businesses face margin pressure from both sides.

Supply disruptions are likely to push up fertilizer prices or constrain availability, threatening next season's harvests. Meanwhile, diesel prices have doubled, raising farming costs and prompting some smallholders to scale back production.

Surging marine fuel costs have also driven up grain shipping rates, at times exceeding the value of the cargo, worsening food shortages in vulnerable regions, Ding added.

"It has fueled market concerns over energy supply shortages while pushing up global inflation, dampening the momentum of economic recovery and increasing the risk of a 'hard landing'," he said.

Ding added that the energy crisis stemming from the US-led conflict in Iran is set to have global repercussions, though its effects will be unevenly distributed across economies.

"Smaller energy-importing economies … are likely to experience comparatively stronger macroeconomic effects," the ADB report said.

Zhu Zhaoyi, an associate researcher at Institute of International Economy at the University of International Business and Economics, said that the conflict has dealt a blow to globalization.

Over the past three decades, global economic prosperity has been supported by complex supply chains premised on a stable security environment, he said.

The Russia-Ukraine conflict that started in 2022, the Red Sea crisis in 2024 and the ongoing large-scale conflict in the Middle East have posed a threat to the order underpinning globalization, Zhu added.

Ding in Shanghai noted that the conflict has undermined the perception of Gulf countries as "safe havens", with their investment climates and economic outlook facing considerable scrutiny.

All Gulf countries have been significantly affected by the conflict, he said. "Once the strait is blockaded or shipping risks rise, Gulf oil exporters could struggle to export oil and secure foreign currency revenues."

Shafira Ananda Putri Boediman in Jakarta and agencies contributed to this story.

liujianqiao@chinadaily.com.cn