Demand destruction has begun: What Sri Lanka reveals about the global energy crisis

An escalating conflict in the Middle East, involving the United States, Israel, and Iran, has triggered a significant energy crisis across South and Southeast Asia. Since mid-March 2026, the region, heavily dependent on imported oil and gas, has experienced severe disruptions due to constrained shipping through the Strait of Hormuz. This has resulted in sharp price increases, critical shortages, and urgent governmental responses.

Sri Lanka serves as a prominent example of this regional impact. The nation is currently grappling with extensive shortages of liquefied petroleum gas (LPG), which is severely affecting household cooking and small businesses. Furthermore, the absence of fertilizer shipments is jeopardizing the vital March planting season, while petrol stations are implementing distribution restrictions.

Government Responses to Energy Shortages

In response to these challenges, the Sri Lankan government has enacted several emergency measures. These include the implementation of a four-day workweek and the shift to remote learning for schools on Wednesdays. Public transport and other essential services have also been curtailed, and a mandatory petrol rationing program was reintroduced on March 15, 2026.

Similar governmental actions are being observed across other Asian nations. The Philippines has shortened its workweek, Pakistan has closed educational institutions, and Myanmar has imposed restrictions on mobility. These measures reflect a broader regional effort to manage dwindling energy supplies and mitigate economic fallout.

Regional Economic Strain and Global Outlook

Refineries in key regional hubs such as Singapore and Malaysia have reported reduced output, primarily due to limitations in crude oil availability. This reduction in refining capacity further exacerbates the supply crunch across the continent. The International Monetary Fund (IMF) has issued a warning regarding the potential global implications of sustained energy price hikes.

The IMF projects that such increases could lead to elevated global inflation rates and a reduction in economic growth, with emerging markets identified as particularly susceptible to these adverse effects. Evidence of "demand destruction" is already apparent, with reports indicating a 30 to 35 percent decline in refined fuel shipments across Asia.

Impact on Global Markets and Supply Chains

The ongoing energy crisis is not only a regional concern but also poses significant risks to global markets and supply chains. Disruptions in a major energy transit choke point like the Strait of Hormuz have immediate and far-reaching consequences for international trade and commodity prices. The ripple effects are likely to be felt in various sectors, from manufacturing to agriculture, as energy costs permeate all aspects of economic activity.

Governments and international organizations are closely monitoring the situation, as prolonged instability could undermine global economic recovery efforts. The vulnerability of import-dependent economies highlights the critical need for diversified energy sources and resilient supply chain strategies in an increasingly volatile geopolitical landscape.

Implications

Country Impact: Sri Lanka faces severe domestic disruptions, including LPG shortages, agricultural setbacks due to lack of fertilizer, and public service curtailments, impacting daily life and economic stability. Other Asian nations are implementing similar austerity measures.

Industry Impact: The energy sector is experiencing significant supply constraints, leading to reduced refinery output in key Asian hubs. This directly impacts manufacturing, transportation, and agricultural industries reliant on fuel and energy inputs.

Market Impact: Global energy prices are surging, contributing to inflationary pressures and potentially slowing economic growth worldwide. Emerging markets are particularly vulnerable to these price increases and supply chain disruptions.