APAC manufacturing nears standstill as ME conflict chokes supply chains

The report flags energy availability as the region’s most critical constraint.

Asia-Pacific’s manufacturing sector is bracing for severe disruption as an energy supply shock threatens a broader supply-chain breakdown, according to an S&P Global Ratings report.

The report flags energy availability as the region’s most critical constraint, with the Middle East supplying about 40% of Asia-Pacific’s energy imports, leaving limited room for substitutions

For manufacturers, power shortages are beginning to affect generation, transport and logistics, whilst restricted flows of key industrial inputs are tightening production capacity across multiple sectors.

Disruptions are also constraining inputs for polymers, specialty chemicals and active pharmaceutical ingredients, threatening output in both industrial manufacturing and pharmaceutical exports.

Moreover, manufacturers are being squeezed from both sides: rising input costs and weakening demand.

Higher energy and feedstock costs are compressing margins, particularly for downstream sectors like chemicals, where the ability to pass on costs is limited.

The strain is compounded by fragmenting trade flows and volatile US tariff policy, which are forcing companies to reconfigure supply chains.

Chinese exporters redirecting goods into Asia-Pacific markets are intensifying competition, further pressuring margins for local manufacturers already dealing with elevated input costs.

S&P Global projects 4.5% GDP growth for Asia-Pacific in 2026, but warns that supply shocks and energy constraints could stall activity, particularly in manufacturing-heavy economies.

If disruptions persist, the report expects manufacturing curtailment, margin compression and potential plant shutdowns, with downstream sectors facing the most acute pressure.