Mon, May 18, 2026 page7

• The energy crisis is becoming a currency crisis

  • By David Fickling / Bloomberg Opinion
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  Have a look at a list of the worst-performing currencies since the start of the US and Israeli war with Iran, and a striking but unsurprising pattern emerges: They are almost all energy importers.

  The biggest losers include the Egyptian pound, the Philippine peso, the South Korean won and the Thai baht. Among the handful of currencies that have risen, meanwhile, you find the Brazilian real, the Kazakhstani tenge and the Nigerian naira — all significant oil exporters.

  That is a hint of how the next stage of this energy crisis could play out. Just as major oil importers have been running down their reserves of crude since the Strait of Hormuz was closed, so they have also been eroding their financial buffers. Governments have cut taxes and lifted subsidies for road fuels to dampen the shock from rising crude prices. Foreign exchange reserves, too, are declining rapidly as the price of oil and gas imports goes up without any offsetting increase in the value of exports.

  We could be about to hit a critical juncture. In India, the third-largest oil importer, Indian Prime Minister Narendra Modi has called on people to limit their fuel usage and hiked duties on gold and silver imports to preserve the balance of payments. “It is time for us to use petrol, diesel and gas with great care,” he said on May 10. “We must make efforts to use only as much as is needed to save foreign currency.”

  In Turkey, which depends on imports for more than 70 percent of its energy consumption, foreign exchange reserves experienced their biggest monthly decline on record in March. Indonesia’s rupiah has weakened below the levels it plumbed during the 1998 Asian financial meltdown. The country is deeply vulnerable to shockwaves from the war in Iran, as my colleague Daniel Moss has written.

  The nexus between energy and currencies is one factor that makes this crisis different, economist Philip Verleger noted. In the 1970s, when the US was a net oil importer, the 1973 and 1979 oil shocks raised its own import bills and caused the dollar to weaken. That softened the impact of the emergency on other countries that priced their crude purchases in US$.

  This time, the situation is reversed: With the US as the world’s oil and gas supplier of last resort, the dollar is likely to get stronger, not weaker. If you are an emerging Asian economy with minimal domestic petroleum reserves, you are not just paying more for crude. You are paying more for the dollars you need to buy it, too.

  Governments around the world have been far too slow to embrace the potential of clean energy from wind, solar, nuclear, batteries and electric vehicles. The current emergency should be a wake-up call that those technologies are not just a necessity for avoiding the long-term ravages of climate change. They are also the best route out of a fossil-fuel dependency that leaves fragile economies, and their currencies hooked on a constant flow of easily disrupted, volatile commodity imports.

  Indonesia, for instance, is struggling with how to make it through 2026 without breaking a law that requires the budget deficit to be no greater than 3 percent of gross domestic product. Yet some 2.7 percent of GDP goes on fossil-fuel subsidies, mostly discounted gasoline and diesel. Thailand expects its debts to rise as the government borrows 150 billion baht (US$4.6 billion) to patch up deficits at its Oil Fuel Fund. India’s government-controlled oil retailers are losing 10 billion rupees (US$104.19million) every day due to selling gasoline, diesel and LPG below cost.

  In all these countries, EVs have been making inroads thanks to rapidly improving costs. More than 30 percent of cars sold in February in Indonesia and Thailand were battery-only. In India, where electric mobility has been slower to take off, sales still jumped 41 percent in April from a year earlier, and electric rickshaws make up 60 percent of that market.

  Chaotic government policy has not always helped those transitions. However, the strength of consumer demand for an alternative looks undeniable. In countries that subsidize fuel, as is the case in most of Asia, any further fiscal space should be used to abolish EV import taxes and support purchases and the scrappage of old conventional vehicles. The cost would be a fraction of the far bigger sums that would be spent on lowering the cost of years of oil imports. The huge savings in terms of human health and the climate, meanwhile, come for free.

  It is the same situation with LNG, a costly and unreliable source of grid power that is now being comprehensively undercut by wind, solar and batteries.

  In the Middle East, some of the world’s richest economies owe their wealth to the amounts they have charged generations of the world’s poorest for ongoing exports of oil and gas. Clean technology is finally smashing that paradigm, allowing people to harvest cheaper energy for decades to come. If emerging countries seize the moment, this could be the last time an energy crisis turns into a currency crisis.

  David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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