Doha, July 11 (QNA) - Qatar National Bank (QNB) expects the repercussions of the military escalation between the United States and Iran on financial conditions, foreign exchange reserves, and food security to persist for a longer period, even after the crisis ends, for most frontier and emerging economies in Asia.

In its weekly report, the bank indicated that Asian central banks face a complex task of balancing support for slowing economic growth and curbing inflationary pressures.

The report noted that the energy crisis in Asia will not end simply with a US-Iran agreement, but only when supply chains, reserves, and price levels in the region fully return to normal.

It added that the military escalation between the US and Iran caused one of the largest shocks to energy supplies in history, due to the closure of the Strait of Hormuz and disruption of about one-fifth of global trade flows of oil and liquefied natural gas.

The report showed that Brent crude prices consequently peaked at USD 118 per barrel before falling to below USD 80 per barrel in mid-June with signs of a ceasefire, while global oil inventories continued to decline rapidly.

Asia is one of the regions most affected by this major disruption in energy supplies, as about 80% of its crude oil imports and 90% of its LNG imports typically pass through this vital sea lane.

The report reviewed the response of governments across Asia through emergency measures unseen since the COVID-19 pandemic, including fuel rationing, adoption of four-day work weeks, restarting coal plants, and drawing record amounts from strategic petroleum reserves, raising questions about the persistence of inflationary pressures in the continent.

The report addressed the repercussions of the escalation on advanced and emerging Asian economies and analyzed its impact on inflation, noting that withdrawals from strategic petroleum reserves across Asia constituted the first line of defense against the supply shock.

It showed that Japan and South Korea, which typically obtain 95% and 70% of their oil needs from the Middle East respectively, have strategic reserves equivalent to about 30 weeks of supply, while China, despite being the world's largest crude oil importer, can still access Iranian and Russian energy supplies via routes that bypass the Strait of Hormuz and can also switch to domestic coal for power generation.

QNB considered in its weekly report that the options for most other Asian economies appear limited compared to China.

The report clarified that India, Vietnam, Singapore, Bangladesh, Pakistan, and Sri Lanka have limited strategic reserves sufficient for 30 to 90 days, noting that the latter countries in this group face greater risks due to limited foreign exchange reserves and tight fiscal space, reducing their ability to absorb the supply shock.

The report showed that the impact of the energy shock on inflation is transmitted through three main channels simultaneously. The first and fastest is the direct pass-through of higher oil and gas prices to fuel, electricity, and transport costs, evident in rising container shipping costs, gasoline queues, higher electricity tariffs, and jet fuel surcharges across the region.

It added that the second channel is food and fertilizer prices, as petrochemical supply chain disruptions reduced the availability of raw materials for LNG-derived fertilizers, raising agricultural input costs and threatening food security in South and Southeast Asia.

It pointed out that the third channel is currency depreciation, as higher energy import bills in Asian economies led to deteriorating trade balances and increased capital outflows, weakening currencies against the US dollar and raising import price inflation beyond the direct effect of higher energy costs.

The report affirmed that the impact of these three channels occurs simultaneously, exacerbating inflationary pressures in the region, which are expected to reach 5.2% this year, compared to 3.0% last year.

At the conclusion of its analysis, the bank viewed that the announcement of a US-Iran agreement brings cautious optimism, but emphasized that any quick solution would not immediately stabilize prices and supplies.

It expected that returning production and trade patterns across Asia to pre-escalation levels would take until early next year, noting that mine clearance, resumption of logistics through the strait, and restarting halted production fields may require months of sustained efforts.