The chaotic conditions created by the US/Israeli war against Iran are escalating. The reverberations could be severe worldwide, particularly in Southeast Asia, including the Philippines.
EXPRESSO (a Portuguese weekly): China is sending a special envoy Zhai Jun to the Middle East to de-escalate the situation. Is Operation Epic Fury intended to continue until the objectives defined by Trump and Israel regarding Iran are achieved?
China’s envoy will seek a path to de-escalation. But the US stance, and certainly the view of Prime Minister Netanyahu, suggest that hostilities will prevail until Iran’s military capacity is dismantled or the regime capitulates. After all, the two began the war when the peace talks in Oman were about to succeed.
Neither President Trump nor the Israeli government has clearly stated the objectives. The US administration’s objective seems to be to dismantle the Iranian leadership and gain control of Iran’s massive untapped energy reserves. Whereas PM Netanyahu has long sought to fragment Iran as a nation (see my “The Fall of Israel,” 2024; and “The Obliteration Doctrine,” 2025).
The US/Israeli strikes violate Article 2(4) of the UN Charter, which prohibits the use of force against the territorial integrity of another state. Also, US/Israeli airstrikes target civilians and civilian infrastructure, which is a gross violation of international law and a war crime.
Few short-term gains, huge long-term losses
E: With the problems in the Strait of Hormuz and risks in the Red Sea, who will be the main beneficiaries of this energy crisis regarding critical supplies to China and Asia?
With the disruption in the Strait of Hormuz, the primary short-term beneficiaries may feature those energy exporters — Russia, the US, possibly Turkmenistan, Kazakhstan and Australia — that can bypass Middle Eastern chokepoints through pipelines or alternative maritime routes.
In the long term, all stakeholders will lose. There are no winners in trade wars, cold wars and unwarranted hot wars. And this war against Iran could have far, far worse long-term implications than the proxy wars in Ukraine and Gaza.
President Trump’s order to bomb 90 military targets in Kharg island, the heart of Iranian oil industry, and his threat to target Iran’s oil facilities “next time” have drastically raised the stakes in the Gulf.
Impact on China’s prospects
The Iran shock poses an economic threat to China, primarily through a surge in oil prices. Beijing imports 90 percent of Iran’s crude and 50 percent of its total energy from the Middle East. With the disrupted routes in the Strait of Hormuz, the conflict is forcing higher shipping costs.
But unlike the West, China has also long prepared for the Iran crisis. To a degree, its large oil stockpiles and shift to electric vehicles can help insulate the economy from supply disruptions.
The longer this war continues, the more the future prospects of all major economies will be penalized.
Dire but divergent impact
on Asia, especially PH
E: Which regions or sectors in Asia are more fragile and likely to be most affected in terms of growth and inflation? Or are the fundamentals in Asia resilient to this shock, particularly in China and Asean?
The year 2026 will see increasing economic divergence in Asia. Technology-driven economies could remain resilient. Those reliant on traditional manufacturing face intense competition and trade policy pressures. In turn, commodity-dependent economies reliant on oil imports will be hit from all sides.
Those countries with a “China+1” strategy (e.g., Vietnam, Malaysia, Thailand) cope with new risks and higher operating costs.
Export-dependent advanced manufacturing economies such as Taiwan, Singapore, Korea and Malaysia could remain resilient, driven by AI-related demand, advanced electronics and FDI. Thailand, Indonesia and the Philippines are likely to underperform.
Since Manila imports almost all of its crude oil from the Gulf, it will take a heavy hit, as already evidenced by soaring fuel prices and energy cuts, elevated market instability, weak peso and agricultural strains. Worse, unemployment is rising; economic growth will be penalized further with surging food prices and inflation (up to 3 to 6 percent in worst-case scenarios).
The government underestimated the impending adverse impact, which occurred amid the great corruption debacle. So, the stagflationary impact could prove transformational.
Severe hits in Asian markets
E: In the exchange markets, Asia was the most “injured” last week, with a collapse particularly at Seoul and significant lows in Tokyo, Thailand and Taiwan. Why?
In the past two weeks, the MSCI AC Asia Pacific Index has declined by 8.6 percent. That’s 2.5 times more than the MSCI World Index. The sharp decline is driven mainly by a perfect storm of regional energy dependencies and a sudden reversal in technology sector momentum.
Global shipping traffic through the Gulf has already plunged. A full month of closure would exhaust “just-in-time” inventories for electronics and automotive sectors in Asia and Europe.
Brent prices peaked near $120 on Monday, March 9, the largest surge in a single week in modern records. The release of emergency reserve releases buys time, but if that time is not well spent, the prices will soar again.
Brent crude oil scenarios are dictated by the status of the Strait of Hormuz. Even the base case is now around $95–$100 per barrel. A prolonged disruption would result in Brent averaging at $110–$140. A sustained blockade would push prices above $150.
What happens in Asia won’t stay in Asia
E: What could be the combined effect of this Middle East war with the new global 10 percent tariff framework (possibly 15 percent still this year)?
The combined effect of the Middle East conflict and a global 10–15 percent tariff framework could morph into a highly damaging supply shock, at the worst historical moment. And it would hit Southeast Asia particularly hard.
In a geopolitical and trade “dual shock,” inflationary pressures and growth stagnation hit simultaneously from two different directions. The longer the duration of the crisis, the more corrosive the stagflation impact would be.
Worse, what happens in Asia won’t stay there. Since emerging economies in Asia account for some 60 percent of global growth, anything that undermines their economic expansion will penalize the already dire global prospects.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net
This is a short/updated version of Dr. Steinbock’s Q&A with Expresso, a leading Portuguese weekly, along with economist Barry Ehrenreich and other international experts, on March 9 and 12, 2026.