Research Abstract:

The closure of the Strait of Hormuz following the outbreak of the 2026 Gulf conflict has produced the most severe global energy supply disruption since the 1973 Arab oil embargo. Approximately 20% of global oil supply and a comparable share of liquefied natural gas (LNG) trade — roughly 12–15 million barrels per day of crude oil and over 100 billion cubic meters of annual LNG capacity — has been disrupted since late February 2026. Crude oil prices have surged past USD 100 per barrel, LNG prices in Asia have spiked to multiples of pre-crisis levels, and fertilizer markets have been severely disrupted as the Gulf accounts for approximately 30–35% of globally traded urea and 20–30% of ammonia exports.

Developing Asia is disproportionately affected. The region sources approximately 80% of Gulf crude exports, and the economies of South and Southeast Asia — India, Indonesia, the Philippines, Vietnam, Thailand, Bangladesh, and Pakistan among them — are net energy importers with limited strategic reserves and constrained fiscal capacity to absorb price shocks. The immediate macroeconomic effects are already visible: inflationary pressure, widening current account deficits, currency depreciation, rising import bills, and fiscal strain as governments choose between subsidizing energy costs and cutting other expenditures.

This report examines the productivity implications of the 2026 energy crisis for developing Asia, with particular attention to the informal sector — the segment of the economy that employs the majority of workers, accounts for the majority of enterprises, and is least equipped to absorb energy price shocks. The central argument is that energy price shocks affect informal-sector productivity through transmission channels that are distinct from and more severe than the channels through which they affect formal enterprises: informal enterprises cannot hedge energy costs, cannot pass through price increases to customers in competitive local markets, cannot substitute between energy sources, and have no access to the government subsidies and tax relief that partially insulate formal enterprises. The result is a disproportionate productivity shock to the sector that can least afford it — with implications for poverty, inequality, and inclusive development that extend well beyond the duration of the crisis itself.

Table of Contents:

Executive Summary
Chapter 1: Introduction — The 2026 Energy Crisis and Developing Asia
Chapter 2: Energy Price Shocks and Productivity — The Analytical Framework
Chapter 3: Macroeconomic Transmission — How the Crisis Reaches Developing Asia
Chapter 4: Sectoral Productivity Effects
Chapter 5: The Informal Sector — Why Energy Shocks Hit Hardest
Chapter 6: Differential Vulnerability — Why Some Economies Are More Resilient
Chapter 7: Policy Responses — Protecting Productivity During the Crisis
Chapter 8: Conclusions
References