The current middle east conflict has impacted Asia ex China the most. The Mideast Conflict disproportionately affects Asia due to its reliance on imports of Mideast crude oil, petroleum products and LNG. Asia's relatively large net energy importing reliance, its large exposure to Middle East energy/fertilizer imports/remittances, and the region’s overall trade reliance exposes it to weaker external demand. Eurozone too has been impacted severely as 60% of it's energy demand is met through imports. In Asia itself, worse affected might be countries such as Japan, South Korea & India. China because of it's 1.4 BN barrel emergency reserves looks least affected. Amongst Eurozone, UK is the worst affected in Eurozone due to current Iran conflict. The current elevated inflation & fiscal constraints limit policy response to energy shock. US on the other hand is relatively insulated amidst the current middle east conflict. Linear models of the US economy suggest that even very large oil price shocks may have muted effects on the US economy. This muted impact was rationalized by the shifting nature of the US economy, namely the advent of shale energy production, which has made the US a major energy producer and exporter. For the Asian & Eurozone importers, the cost is not only being borne in crude and distillates. It is across chemicals, plastics, pharma & fertilisers supply chains. Brent prices are not even showcasing the real price shock to Asia as spot Dubai & spot Oman crude are priced $40-$50 above brent. Even if TACO happens, the spread might reduce to $10-20, yet assuming an avrg brent post TACO at 85, including shipping & insurance cost, landed cost of crude basket is $100 in best case compared to pre conflict levels of $65-70 levels. Asia & Eurozone are the two regions which will born the cost of the current conflict. The disconnect between futures which are underpinned by hundreds of billions of dollars of daily transactions and physical oil is partly due to aggressive US attempts to keep a lid on prices, including through releasing emergency supplies. The reality is that the global economy is suffering from a bigger inflationary hit than Brent futures suggest.
