Iran War Drives Oil Prices Up, Intensifying Asia-Pacific Inflation Pressures

Overview

This report is a data tracking monitor on Asia-Pacific inflation released by Goldman Sachs. The core conclusion states that due to the outbreak of the Iran war and subsequent closure of the Strait of Hormuz, disruptions in energy supply caused significant fluctuations in oil prices, driving up import prices, producer prices, and retail fuel prices across the Asia-Pacific region. Currently, headline and core CPI in most countries in the region have recovered to within or above central bank target ranges, while some low-income economies face severe inflation pressures. Based on this, Goldman Sachs has raised its 2026 CPI forecasts for India and several ASEAN nations, anticipating they will exceed market consensus levels.

Core views

Energy price shocks are the primary driver of the current inflation uptrend. Since the outbreak of the Iran war, commodity strategists have significantly raised energy price forecasts, projecting Q4 Brent crude prices at $90 per barrel, with upside risks prevailing. Data shows that since late February, import prices, producer prices, and retail fuel prices across Asian countries have generally risen sharply, although some countries have mitigated retail-side increases through implicit or explicit subsidies. Inflation pressures show divergence among different economies, with low-income economies having limited subsidies being more severely affected. Seasonally adjusted annualized CPI growth rates in the Philippines, Thailand, and Vietnam all exceeded 10% over the past three months, indicating very strong inflation momentum. In contrast, prior to the war, most countries' CPI inflation rates roughly met or were below central bank targets; now, including Australia and the Philippines, multiple countries see both headline and core CPI exceeding the upper bound of their central bank target ranges. On the forecasting front, as the impact of reduced energy supply on Asia becomes apparent, both Goldman Sachs and market consensus have raised CPI inflation forecasts for most economies in the region. Specifically, Goldman Sachs' 2026 CPI forecasts for India and most ASEAN countries remain above market consensus, while its forecasts for other major economies in the region align broadly with market consensus. Additionally, regarding wage inflation, apart from South Korea and Indonesia where pre-war data showed accelerating wage growth, wage inflation performance in most other countries in the region remained stable or declined.

Analysis framework

The report adopts a typical 'external shock - transmission mechanism - macroeconomic outcome' analytical framework. First, it identifies geopolitical events (the Iran war and strait closures) as exogenous supply shock sources; second, it tracks changes in energy prices (crude oil, refined products) and import/export price indices to analyze the transmission path to producer prices (PPI) and consumer prices (CPI); finally, it evaluates the policy implications and future trends of current inflation levels by combining them with each country's central bank inflation target ranges. This top-down macro monitoring approach helps quickly capture common characteristics and country-specific differences in regional inflation trends.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission in Industrial Chain

  Price Transmission Mechanism

  The report analyzes how rising energy prices transmit from upstream (crude oil imports, Strait of Hormuz traffic flows) to midstream (producer prices/PPI), ultimately affecting downstream (retail fuel prices, CPI). Understanding this transmission chain helps assess the persistence and breadth of inflation pressures.

• Macroeconomic framework

  Geopolitical Supply Shock

  The report treats the Iran war and strait closures as typical negative supply-side shocks that directly shift the energy supply curve leftward, triggering cost-push inflation. This is a common logic used in macro analysis when assessing the impact of sudden geopolitical crises on prices.

Key data

• Brent Crude Q4 Forecast Price$90 per barrelRevised forecast by Goldman Sachs commodity strategists, with upside bias
• Philippines/Thailand/Vietnam CPI Annualized Growth Rate>10%Seasonally adjusted annualized growth rate over the past three months, indicating acute onset of inflation pressures
• India 2026 CPI Forecast (Goldman Sachs)4.6%Above market consensus of 4.4%
• ASEAN 2026 CPI Forecast (Goldman Sachs)3.6%Above market consensus of 3.2%; Philippines forecast is as high as 5.7%
• China 2026 CPI Forecast (Goldman Sachs)1.0%In line with market consensus

Impact & implications

The report suggests that energy-driven inflation recovery means monetary policy easing space in the Asia-Pacific region is being squeezed, particularly for countries where inflation has already exceeded target ranges (e.g., Australia, Philippines). For investors, attention should be paid to the erosion of consumption capacity in low-income economies due to high inflation, as well as potential tightening or maintenance of high interest rate policies by various central banks. Furthermore, given that Goldman Sachs' inflation forecasts exceed consensus, there may be a risk that market expectations underestimate the persistence of inflation.

Risks

• Further deterioration of geopolitical situation leading to prolonged energy supply disruptions
• Withdrawal of government subsidy policies in various countries leading to faster pass-through of retail energy prices to CPI
• Risk of wage-price spiral, especially in countries with accelerating wage growth such as South Korea and Indonesia

What to watch

• Brent crude price trends and restoration of traffic through the Strait of Hormuz
• Subsequent monthly CPI data from high-inflation countries such as Philippines, Thailand, and Vietnam
• Policy responses and interest rate decisions by central banks in reaction to unexpectedly high inflation
• Whether wage growth data in South Korea and Indonesia continues to remain robust