How a Middle East War Hits Asian Manufacturing

Chain one: energy costs raise the factory bill

Many Asian economies rely heavily on imported oil and gas, particularly from the Middle East, which makes them more exposed when energy supplies are disrupted or prices spike . The IMF has also noted that large Asian energy importers are facing higher fuel and input costs .

For factories, an energy shock is not only a line on an oil-price chart. Diesel for logistics, electricity, fuel surcharges, packaging, chemicals and supplier quotes can all move with energy prices. If manufacturers cannot pass those costs on, margins take the first hit. If they can, the pressure moves along the supply chain into wholesale and final prices.

Chain two: the Red Sea makes Asia-Europe shipping costlier and harder to plan

The Red Sea is the most direct route by which Middle East conflict spills into manufacturing supply chains. The IMF has said the war in Gaza, attacks on Red Sea shipping and lower oil output have weighed on Middle East economies and trade . A World Bank-cited report said the Red Sea crisis reshaped port trade activity along the Asia-Europe corridor and raised global shipping costs by 141% .

Different institutions use different indexes, time periods and definitions, so these figures should not be simply added together. But the direction is consistent: Red Sea disruption makes Asia-Europe trade more expensive, slower and less predictable .

For Asian exporters, the pressure usually appears in three places: higher spot freight quotes, less reliable sailing schedules and a need to hold more safety stock. Low-margin, low-inventory and just-in-time supply chains are especially exposed when freight rates jump or delivery windows slip.

Chain three: inflation travels from fuel and freight into quotes

The head of the IMF has warned that a Middle East war would mean higher inflation and slower global growth . The transmission path is straightforward: higher energy and input costs raise production expenses; more expensive shipping increases landed costs; tighter financial conditions make inventory, working capital and refinancing more burdensome .

This kind of inflation does not always show up immediately on every retail shelf. But it can quickly change how manufacturers price risk. Suppliers may shorten the validity period of quotes, add fuel or freight surcharges, raise minimum order quantities, or become more cautious about delivery commitments. If energy and shipping pressure lasts, it also becomes harder for inflation to cool.

Beyond oil: fertilizer, high-tech supply chains and finance

The spillover is not limited to crude prices. The IMF says parts of the Middle East, Africa, Asia-Pacific and Latin America are facing higher food and fertilizer prices as well as tighter financial conditions . The World Economic Forum has described the Strait of Hormuz as a critical global chokepoint where disruption could threaten not only oil shipments but also fertilizer access and high-tech supply chains .

For Asian manufacturers, that means the risk may not arrive only through the factory’s own energy bill. Even a company that is not energy-intensive can feel the pressure through upstream materials, chemicals, packaging, logistics, supplier financing or customers delaying orders.

Which Asian manufacturers are most exposed?

The highest-risk companies are not defined only by country or sector. The pressure is greatest where several vulnerabilities overlap:

• Heavy energy-import dependence: Economies and factories that rely on imported oil and gas, especially from the Middle East, will feel fuel, power and input-cost volatility more quickly .
• High reliance on Asia-Europe sea freight: The Red Sea crisis has already changed trade activity along the Asia-Europe corridor and pushed up shipping costs, making exporters to Europe especially exposed to freight and schedule risk .
• Thin margins, low inventory and just-in-time delivery: These supply chains have less room to absorb sudden freight increases, delays or supplier price hikes.

What companies can do now

Under Middle East risk, supply-chain management cannot focus only on the lowest price. The better question is which part of the chain is most fragile.

Manufacturers can start by checking four things: how sensitive margins are to energy and power costs; whether main shipping routes have workable alternatives; whether critical materials have second sources; and whether sales contracts reflect fuel and freight volatility.

A practical next step is to stress-test against Red Sea disruption, a Strait of Hormuz shock, oil and gas price spikes, and major freight-index moves. If the disruption stays in the Red Sea, the pain is mostly freight rates and delivery times. If it escalates into major oil and gas routes, Asian manufacturing faces a broader shock to costs, inventory and inflation .

The bottom line: a Middle East war may not instantly break Asian supply chains. But it can make production more expensive, delivery slower, inventory needs higher and inflation harder to bring down. For Asian manufacturers, the next test of competitiveness is not only low cost — it is the ability to keep delivering when energy and shipping shocks hit at the same time.