The global energy shortage has severely impacted South Korea. Officials have urged energy conservation, downgraded growth projections, and warned about repercussions from high inflation and currency values hitting 17-year lows. Despite this, the nation’s largest corporations are reporting record profits, and the stock market is achieving all-time highs.
This contradiction highlights the existence of two divergent economic realities currently present in Asia.
The historic oil shock, triggered by the conflict in Iran, is accelerating the divergence in economic fortunes across the region. One reality is propelled by tech giants and the promise of artificial intelligence. The other is overshadowed by fuel scarcity and rising costs, raising fears of a humanitarian crisis.
As the disproportionate impact of Asia’s oil crunch widens the gap, economists caution that this trend carries significant implications for monetary policy, political stability, and the future trajectory of economic growth across the continent—as well as in dependent trading partners globally.
“While the economy is doing well and the stock market is performing very strongly, we see a limited wealth effect translating into everyday life across the region,” noted Benson Wu, a Korea and China economist at Bank of America Merrill Lynch. “I think this is genuinely concerning many observers.”
This disparity points toward mounting inequality, initially exacerbated by the Covid-19 pandemic and now intensified by the Middle East conflict. Shipping through the Strait of Hormuz, through which roughly one-fifth of the world’s oil normally passes, has been disrupted over the last two months, pushing oil prices to a four-year peak.
Indian consumers are seen queuing up to refill their empty LPG cylinders near a gas agency office in
Asia, heavily reliant on the Middle East for energy, has absorbed the initial impact of these elevated prices. However, the effects are not felt uniformly. Developed, technology-focused East Asian economies like Japan, South Korea, and Taiwan possess substantial fuel reserves, alongside the financial muscle to absorb price hikes and secure greater supplies.
Meanwhile, emerging economies such as India, the Philippines, and Thailand, whose growth is rooted in traditional manufacturing and services, are grappling with increasing difficulties in securing fuel and offsetting slowing economic activity.
“These are the regions that, first, aren’t sharing much in the positive momentum coming from the current AI or tech story. Second, they are potentially facing an even greater shock from inflationary pressures stemming from the Middle East conflict,” stated Wu. “This is something we need to monitor very closely.”
The Widening Divide
Semiconductors have already powered everything from smartphones to cars and home appliances, earning the industry the moniker “the new oil.” Now, the AI boom is driving demand even higher.
A UN report on trade and development forecasts that the global AI market will expand to $4.8 trillion by 2033—a 25-fold increase from 2023. Morgan Stanley has estimated AI infrastructure spending could surpass $3 trillion over the next two years.
The economic ramifications are most evident in the world’s chip-making capitals.
Taiwan’s first-quarter GDP growth hit a 39-year high of 13.69%, and its stock market has surged past Canada’s to become the sixth largest globally. This growth is largely attributed to chip manufacturing giant Taiwan Semiconductor Manufacturing Company (TSMC), which accounts for over 40% of the Taipei Stock Exchange’s capitalization.
The Seoul stock market has also recently surpassed London’s and Canada’s to rank as the world’s seventh largest. South Korea’s two largest corporations—chipmakers Samsung Electronics and SK Hynix—reported record profits for the first three months of this year, with Samsung’s market capitalization exceeding $1 trillion.
AI is energy-intensive, and most high-tech Asian hubs must import fuel and raw materials. However, the vast sums of money flowing into the industry have mitigated concerns about their ability to secure supplies.
“Semiconductor firms will be able to pass on these additional costs to end customers,” explained Jason Louie, Head of Asia-Pacific Equity and Derivatives Strategy at the French bank BNP Paribas. “Demand for semiconductors is highly inelastic, so having the product is more important, and they possess very strong pricing power.”
Simon Woo, Bank of America’s Asia-Pacific Technology Research Coordinator, pointed out that as long as major US tech companies continue investing heavily in AI, Asian chip manufacturers and suppliers are set to thrive. He added that as these stocks have outperformed, investors are no longer satisfied with returns from traditional sectors.
“When you look at AI-related companies, if you say 10% growth, 20% growth, investors say, ‘Oh my goodness, that’s too low,'” he said. “In the AI era, you really need to be hearing 50%, 100% growth.”
A ‘K-Shaped’ Economy
A man observes stock price tickers at the Taiwan Stock Exchange in Taipei on May 4.
A man observes stock price tickers at the Taiwan Stock Exchange in Taipei on May 4. I-HWA CHENG/AFP/Getty Images
While the AI frenzy continues, the most vulnerable populations in Asia are facing the harsh brunt of the Middle East conflict.
The UN Development Programme estimates that the war has pushed 8.8 million people in the Asia-Pacific region toward poverty and could reduce regional GDP by 0.3% to 0.8%.
This stark contrast has come to be known as the “K-shaped economy.” The term describes a sharp divergence between the upper and lower tiers of the economy, popularized after the Covid-19 pandemic disproportionately affected disadvantaged groups. Economists observe that the conflict in Iran is exerting a similar effect.
“The poor suffer disproportionately during these downturns, and they don’t share the gains equally,” said Jayant Menon, Senior Visiting Research Fellow at ISEAS – Yusof Ishak Institute in Singapore. “This inequality compounds and, in a way, becomes self-fulfilling.”
How far the gap widens hinges on government interventions as well as how long the Strait of Hormuz remains effectively closed due to US and Iranian military presence. The AI drive could worsen shortages if its manufacturing and data centers divert energy away from other sectors.
Even within economies benefiting from the AI boom, the resulting wealth is unevenly distributed. In South Korea, tens of thousands of Samsung workers are threatening strikes amid rising discontent over stagnant wages. As consumer activity weakens, the central bank has warned of a growing mismatch between real sentiment and overall GDP growth metrics.
The “K-shape” phenomenon has also become a focus for Taiwanese officials this year, according to Christy Chiu, Director of the ASEAN Studies Center at the Chunghua Institution for Economic Research.
She noted that the semiconductor industry accounts for only about 4% of Taiwan’s workforce, yet entry-level wages there can be five times higher than for their counterparts elsewhere. Excessive focus on one sector risks starving others of vital resources like electricity, further compounding the issue, she added.
“For the general public, especially concerning the AI-based semiconductor industry, everyone speaks of this bright future,” she remarked. “But for economists and think tanks like us, we see this as a very serious risk for Taiwan.”
Economic Ramifications
A person selects goods at a supermarket on April 20, 2025, in Taitung, Taiwan.
A person selects goods at a supermarket on April 20, 2025, in Taitung, Taiwan. Annabell Che/Getty Images
The convergence of the AI boom and the energy crisis presents governments with a unique challenge: how to reconcile an increasingly fractured economy.
Deepening income inequality not only heightens the risk of social and political unrest; it also threatens long-term economic stability because a narrowing concentration of wealth erodes the purchasing power of the majority, which drives economic activity.
Economists observe that the perception of stable growth masks underlying structural problems that could easily intensify.
“This is truly a novel problem,” stated Chiu. “Taiwan cannot afford to lose TSMC or this entire high-tech infrastructure, but the growing chasm between different groups, different households, and sectors must be addressed.”
Meanwhile, central banks must endeavor to balance fostering growth while combating inflation, as uneven monetary policies between countries risk exacerbating regional disparities.
“Do you set interest rates based on 8% GDP growth because one sector is driving it? Or do you set monetary policy for the other 80% of the economy that isn’t growing?” questioned Frederic Neumann, HSBC’s Chief Asia Economist.
Over-reliance on a single industry leaves economies staking their fortunes on high-tech development vulnerable to market corrections if AI development slows, or if worsening feedstock shortages eventually impede electronics production.
However, Neumann warned that the continuing rise in inequality would also lead to unprecedented economic consequences.
“The risk is that the K-shaped recovery becomes K forever; that there is no reconvergence,” Neumann cautioned.
While the consequences are most obvious in Asia now, Neumann noted that as manufacturing and consumer sentiment declines, this is likely to spill over into other economies reliant on the region for trade.
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