Plugged in, Left out: The Two Asias of an Oil War

In the last week of July 2026, Brent crude climbed back above $100 a barrel as a ceasefire between Iran, Israel and the United States collapsed. In China, dealership data for the same period showed electric vehicles taking a record share of new car sales. In Sri Lanka, the same week, reports described a country still absorbing the fallout of an energy shock it had no part in causing. Three data points, one war, and two entirely different Asian experiences of it.

The consensus that has formed

Over the past weeks, banks, oil analysts and Chinese state economists have converged, largely independently, on the same conclusion: China's decade-long bet on electric vehicles cushioned it against the closure of the Strait of Hormuz far more than anyone expected. Analysts at Société Générale have called China the "invisible hand" rebalancing an oil market that, by historical comparison to the 1973 Arab oil embargo, should have spiked far harder than it did. J.P. Morgan's Natasha Kaneva has argued that the war likely accelerated a structural shift in China's oil dependence that was already under way. Executives at China National Petroleum Corporation now expect domestic crude demand to peak within five years. A Jefferies analysis, citing the Centre for Research on Energy and Clean Air, puts a number on it: electric vehicles displaced an estimated 1.35 million barrels of oil a day in China in the first half of 2026, up 42% year-on-year. Chinese crude imports dropped by about 41% in the month of June alone, which was their worst month since 2016.

What the consensus leaves out

Of this coverage "goes beyond China's borders" only a small percentage. It is the divide this piece is concerned with, as the same five months that were relatively easy to absorb in China were experienced in all parts of the region.

The war in eastern India manifested itself as a crisis in fertiliser supply, instead of a car market. The Gulf is expected to contribute about a third of the world's traded urea, and the disruption reduced global supply by an estimated one-third, causing a spot price increase of 40% at the time when farmers were using nitrogen for kharif sowing. Sri Lanka is also in midst of an IMF programme, having completed its 2022 programme, and did not have such a buffer in place either — with over one third of its seaborne imports of fertiliser from the Gulf. Pakistan and Afghanistan were in a more difficult situation; they had even less fiscal space, had to rely on imported fuel and faced high levels of debt which meant they could not afford to simply wait for the price to go up like the Chinese refiners have done for months.

A matter of government rather than capability

Why was there an escape route in one part of Asia and there was not in other parts of Asia? The patently obvious one is money! A more useful answer is state capacity and political responsibility.

China's insulation was achieved in a particular way: state-owned oil firms were told to release their stocks instead of holding onto market shares, and a car industry that has been heavily subsidized for more than a decade was forced to the brink of war by the time of the insurrection when the price-sensitive were already looking elsewhere. Importantly, the loss of the combustion engine market doesn't impact the price at the pump or at the ration shop, it impacts manufacturers and provincial governments.

No equivalent instrument was available in any of the three countries: India, Sri Lanka or Pakistan. India invests a lot in fertiliser subsidy and not in manufacturing as much of the rural electorate is more interested in the price of urea while planting the crops than in the long run of the auto industry. The IMF programme in Sri Lanka provides little scope for the industrial wager Beijing made 10 years ago. For years, Pakistan's fiscal space has been eaten away by debt servicing and this war has imposed additional expenses on top of this for fuel and fertiliser.

A one-party state can absorb a demand shock by running a policy of industrial development for a decade without having to answer to any domestic electorate about the decisions it made. A government which would be compelled to face the voters about the cost of diesel or urea has no such luxury, the pressure is felt at once, within the current election cycle, before the same sort of hedge can get constructed even if there is fiscal scope.

The Way Forward

This is not the case that democratic accountability is a burden to be sacrificed for authoritarian planning, nor that democratic planning is superior. China's own economists have acknowledged the overcapacity of refining capacity even while demand for refined products slows down, and independent estimates peg the impact of a full closure of the Hormuz Strait at nearly half of the crude imports for China, a closure dampened by electrification but not eliminated.

The more helpful lesson for the public-policy community in the region is on time horizons. Three levers stand out. First, there should be no more putting energy and food-security stockpiling on the chopping block when budgets are cut, it should be done as a fiscal priority outside of the election cycle, as China's refiners did. Second, the design of the subsidy counts: India supports the price of its inputs, such as fertiliser, while this helps consumers in the short term, it does not create a buffer for the next shock, and it can have a cumulative effect over a decade of time. Third, regional coordination — either via a SAARC-adjacent forum or via a bilateral reserve-sharing mechanism — can enable fiscally constrained countries to share this type of buffer that may not be available to them individually in the South Asian region.

The next regional shock, whatever its nature, will once again challenge the same question: which governments could plan ten years ahead, politically and financially, and which couldn't?