Is Middle East Conflict Slowing Down Asia Manufacturing?

Manufacturing performance across Asian markets experienced a downturn in March 2026, with purchasing managers index data revealing widespread slowdown across major economies.

Analysts have linked the decline to the ongoing conflict between the US and Israel against Iran, which has intensified cost pressures and operational challenges for manufacturers throughout Asia, affecting nations including South Korea, Japan and China.

Supply chain disruptions have emerged across multiple manufacturing sectors, including semiconductors and batteries, primarily due to the closure of the Strait of Hormuz, a major global shipping route, combined with escalating oil prices.

Manufacturing performance indicators decline

S&P Global Japan Manufacturing PMI, which provides a composite measure of manufacturing performance in Japan, dropped from a 45-month peak of 53.0 in February to 51.6 in March 2026.

Meanwhile, S&P Global RatingDog China General Manufacturing PMI decreased from 52.1 in February to 50.8 in March.

S&P Global Taiwan Manufacturing PMI also declined, falling from February's 55.2 to 53.3 in March.

However, South Korea's Manufacturing PMI showed contrary movement, rising to 52.6 in March from 51.1 in February. Despite this increase, South Korean manufacturers have still encountered significant increases in raw materials costs and elevated oil prices connected to the conflict.

Usamah Bhatti, Economist at S&P Global Market Intelligence, commented on South Korean manufacturing firms: "Firms looked to protect against higher costs by raising prices charged at the steepest rate since July 2022, while also attempting to build safety stocks to guard against future price and supply issues."

Critical materials face shortages

Beyond oil, the Strait of Hormuz transports substantial volumes of materials essential for manufacturing processes, including helium. This element, produced as a by-product of natural gas processing, plays a crucial role across various stages of semiconductor manufacturing.

Helium prices have increased substantially since the conflict began, with costs approximately doubling.

Reuters reported that Samsung Electronics and SK Hynix, two prominent South Korean chipmakers that provide approximately two-thirds of global memory chip supply, maintain helium inventory levels of four to six months.

The Middle East produces sulphur in significant quantities for rare metals processing, used for metals such as nickel, lithium and cobalt. These materials are critical components in battery manufacturing, including batteries for electric vehicles.

Automotive sector challenges intensify

Battery component shortages represent just one challenge facing the Asian automotive industry. According to The Japan Times, approximately 70% of aluminium supplied to Japanese carmakers originates from the Middle East.

Koji Sato, Chairman of the Japan Automobile Manufacturers Association and President and CEO of Toyota Motor Corporation, says: "Companies are simultaneously facing a multitude of challenges that cannot be solved by individual companies alone, such as decarbonisation, rising geopolitical risks, resource and energy constraints and changes in the human resource structure.

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"The rising geopolitical risks, including the situation in the Middle East, make strengthening resilience against uncertainties in energy and supply chains a major theme.

"Another point that has been emphasised through the negotiations this spring is the competitiveness of the industry."

The Middle East conflict has pushed oil prices beyond US$100 per barrel, creating disruption for industries globally, though its effect on Asian manufacturing has been particularly complex and far-reaching.

Before this disruption, S&P Global China Manufacturing PMI had reached 52.1 in February while S&P Global Japan Manufacturing PMI was experiencing a 45-month high of 53.0.

Annabel Fiddes, Economics Associate Director at S&P Global, said: "The slowdown coincides with the outbreak of war in the Middle East, which according to survey respondents directly contributed to stronger cost pressures at the end of the first quarter.

"The war has also fuelled greater uncertainty about the global economic outlook, dampening business confidence and resulting in more cautious hiring and purchasing activity."