How the Middle East Conflict Is Shaping Asia Pacific’s Economy and Commercial Real Estate

What we know

As a result of the conflict, the Strait of Hormuz remains effectively closed. Although some vessels have been allowed by Iranian authorities to transit the strait, they represent only a small proportion of normal maritime traffic through the Gulf. Prior to the conflict, approximately 20 million barrels per day (mb/d) of crude oil and petroleum products typically passed through the Strait of Hormuz, which equates to 20% to 25% of global seaborne oil trade. The situation is more acute for Asia Pacific, which receives more than 80% of imported oil through the strait.

Net energy imports as % of domestic consumption 

Source: World Bank, Moody’s Analytics, Cushman & Wakefield

Share of imports from Middle East countries 

Source: Atlas of Economic Complexity, Moody’s Analytics, Cushman & Wakefield

The immediate impacts of this reduction in oil trade have been seen at fuel stations. Fuel prices have increased around the world, by as much as 68% in some countries. While parts of Asia Pacific have seen more acute impacts, the situation remains highly uneven.  

At one end of the spectrum, economies such as Japan and the Chinese mainland have significant reserves, exceeding 200 days of supply, which have helped cushion the shock. As a result, despite the Strait of Hormuz accounting for approximately a quarter of the world’s oil trade, global consumption has declined by only around 5% to date. This resilience also reflects coordinated reserve releases by the International Energy Authority and individual nations. That said, acute fuel shortages are evident in some countries. 

At the other end, especially in emerging markets across Southeast Asia, varying forms of rationing have been implemented because of fuel scarcity. These include fuel purchasing limits, restricted days on which the population can drive, enforced working from home and reducing in-person school days.  

Between these extremes, advanced economies with limited reserves, such as Australia, have resorted to purchasing oil on the spot market to shore up their supply.  

How are markets reacting?

The full economic impacts of the conflict will take time to materialise, but high-frequency data highlights the elevated uncertainty currently prevailing. Equity markets globally are whipsawing, moving through periods of intense selling and buying as sentiment reacts to evolving headlines. The VIX Index, a forward-looking measure of expected market volatility over the next 30 days, has risen from below 20 for much of 2025 to a peak of 31 on 27 March, though retreated to 25 on 31 March. A score above 30 represents heightened volatility.

Indexed equity market daily pricing (2 January, 2026 = 100)  

Source: Various equities markets; Cushman & Wakefield

Despite heightened volatility, global business confidence has remained resolute overall. After declining sharply in the early stages of the conflict followed by a strong rebound, the latest reading (31 March) shows confidence is starting to be eroded again as oil prices have surged. However, given the level of uncertainty over the duration of the conflict, there is no guarantee that this resilience will persist. The longer the disruption continues, the greater the risk of a material deterioration in confidence.

Economic impact and outlook

The Middle East conflict has now persisted long enough that economic impacts are beginning to emerge. The first channel is inflation, primarily associated with the price of fuel, then progressing on to second- and third-order effects across supply chains and production.  

While the Strait of Hormuz is mainly recognised as a major oil route, it is also a crucial outbound route for other products including petrochemicals and fertilisers, as well as an inbound route to the Middle East for food, pharmaceutical and technology supplies. Concerns are already emerging around fertiliser availability for the Northern Hemisphere spring planting season, with potential implications for crop yields. Similar risks are being discussed for packaging materials, where petrochemicals are a major component, and, in more extreme scenarios, the possibility that manufacturing plants may be forced to stop production.        

Although the extent of these impacts remains largely unknown, it is widely appreciated that even if the conflict were to end immediately, it will take time for both oil production and trade through the strait to return to pre-conflict levels. Furthermore, the economic impacts are non-linear over time—the longer the conflict endures, the greater and more widespread they will become. 

March baseline forecasts, which accounted for the recent changes to the U.S. tariff position following the Supreme Court’s ruling and assumed an end to the conflict by April, now appear optimistic. Inflationary pressures will likely form in the near-term across the region, which is already being anticipated by the bond markets, as evidenced by the recent jump in yields.   

Central bank responses to these inflationary effects will vary. Drawing on lessons from past crises, policymakers are expected to adopt a data-driven approach, reducing the risk of impulsive reactions. However, this also raises the possibility of falling behind the curve as decisions lag incoming data. Importantly, central banks are likely to look through the immediate, supply-driven inflation spike and focus instead on broader transmission into services, wages, and inflation expectations.  

Given that inflationary pressures were relatively subdued across most of Asia Pacific prior to the conflict means that many central banks have a buffer before they need to act. While ultimately this could be in the form of rate hikes, it may instead manifest as a delay or cancellation of expected rate cuts. Regardless, regional economic growth in 2026 is now likely to come in below the latest forecast of 4.0%. 

Asia Pacific inflation scenarios 

S1 = upside 10th percentile; S3 = downside 90th percentile; S4 = downside 96th percentile 
Source: Moody’s Analytics; Cushman & Wakefield 

Asia Pacific real GDP growth scenarios 

S1 = upside 10th percentile; S3 = downside 90th percentile; S4 = downside 96th percentile 
Source: Moody’s Analytics; Cushman & Wakefield 

How does this affect CRE?

Our assessment is that the more enduring impacts on CRE demand will take time to become apparent and will likely be transmitted primarily through the macroeconomy. That said, there are potential near-term effects that will need to be navigated. The timing and the extent of these impacts will vary geographically and between sectors. Key issues we are monitoring include:

Logistics and supply chains 

• The increase in fuel pricing, together with selective fuel shortages, will impact the ability to move goods both nationally and internationally. The fact that prices are greater for diesel than for petrol will impact the trucking industry more acutely, while increases in shipping insurance will play a role for maritime trade.  
• Together, these factors suggest that goods prices will need to increase, causing second-order inflationary effects, and could result in acute shortages of products from time to time.  
• Since the construction industry is not immune from such events, the region could experience an even greater slowdown in new supply than expected at the start of the year.  
• Greater supply chain flexibility and resilience could mitigate or delay some of the impacts. As a result of the pandemic, supply chains have moved from just-in-time to just-in-case models, with higher inventory levels, greater supplier diversification and increased adoption of digital visibility tools. 

Retail 

• Since the retail sector is highly dependent on supply chains, the impacts outlined above are also relevant for this sector.  
• High transport costs will cause the cost of goods to rise. This is over and above the direct cost of fuel. In that regard and by way of example, according to Oxford Economics, a one cent increase in the cost of fuel in the U.S. equates to US$1.5bn in annualised consumer expenditure.  
• Overall, this is likely to lead households to adopt more conservative spending patterns, prioritising non-discretionary items and potentially rebuilding savings buffers. As a result, discretionary spending is likely to be curtailed.  

Office 

• Near-term impacts on the office sector are likely to be location specific, with broader effects emerging more gradually. 
• Increased working from home (WFH) has already been enacted in some Southeast Asian markets due to fuel shortages. In addition, some employees may choose to adopt greater WFH, where possible, to avoid increased fuels costs—especially where public transport is not a viable option.  
• Longer term, any significant economic slowdown or softness in the labour market would weigh on forecast demand for space. For now, however, resilient business confidence suggests this risk remains a way off.  

Capital Markets

• Asia Pacific CRE investment activity has begun 2026 on a strong note. At the end of February, investment activity sat at US$32bn, up 16% year-over-year.  
• Investors will closely monitor central bank messaging and future interest rate movements. Given the limited property yield movement seen during the current cutting cycle, we don’t anticipate immediate upward pressure on yields. 
• Periods of geopolitical uncertainty tend to lead to wider risk premiums and more selective capital deployment. As such, deal velocity could slow temporarily as investors re-evaluate their entry and exit assumptions.   
• Longer term, such geopolitical events are likely to cause investors to reassess not only their geographical focus but to also hone their attention on more resilient assets that provide both defensive qualities and growth opportunities.  
• As clarity emerges, we expect investment activity will resume, potentially offering early opportunities for first movers.