Asian countries that depend on oil and gas imports for their energy security are hoping that the results of the U.S. midterms will lead to an end to the war in the Middle East and, consequently, an end to the severe fuel crisis Asian countries are experiencing. The hopes may be premature, however. Trump is still president, and Democrats are no fans of Iran.
Asia has been the hardest-hit by the fallout of the U.S. and Israel offensive against Iran that began on February 28. For geographical reasons, the Middle East is the top supplier of hydrocarbons to Asia. With that supplier largely gone for an extended period of time, Asian countries were scrambling to secure alternatives—at higher prices.
This brought inflation and boosted government spending to try and shield the economy from the worst of the fallout. Last month, the World Bank warned that, essentially, Asia was running out of money because of the energy crisis. “Subsidies have been by far the most common policy response [to the crisis] among emerging and developing economies,” the World Bank said, adding that “Countries with substantial subsidies in place generally have had smaller increases in retail gasoline prices than non-subsidizers, but this relationship weakened considerably for headline inflation.”
So, now that Democrats have won a majority in both the House and the Senate, there are hopes they would rein the U.S. president in, including on foreign policy. Reuters’s Clyde Russell wrote in a column this week that the way Democrats can interfere with Trump’s policies is to use congressional power to redirect, cut or boost government spending and to start investigations against Trump himself and close allies and family members.
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This suggests Asian economies are not about to get any fast relief on fuels and other petroleum derivatives, just because the Democrats won 240 seats in the House, versus 147 for the Republicans, and 54 seats in the Senate, versus 44 for the Republicans. In fact, chances are nothing will change much, not fast, anyway. And this means pain at the pump—and everywhere else—will continue.
For now, hopes seem to be running high that Democrats will somehow manage to push Trump to make peace with Iran. The details on how exactly remain unclear, but oil prices crashed below $100 on Wednesday following the results of the midterms. This suggests traders are now anticipating an end to the hostilities somehow orchestrated by the Democrat-dominated two houses of parliament. However, some geopolitical analysts have warned that Trump may try to compensate for the election loss at home with an escalation against Iran. Indeed, several analysts from the Middle East have, as cited by Reuters, suggested that an escalation could be Trump’s only option to save face.
This does not bode well for Asian economies and, by extension, the rest of the world. Asia was considered the powerhouse of the developing world, the continent where much of the world’s economic growth was taking place and would continue to take place in the coming years. The war has prompted revisions to these forecasts, with fears of recession running high despite delicate phrasing by forecasters. Hopes for a shift in U.S. policies are therefore quite understandable—if possibly misplaced.
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