Iran oil shock stirs memories of 1997 Asian Financial Crisis — but here’s

A month into the worst oil supply disruption since the 1970s Arab embargo, the economic pain spreading across Asia is reviving an uncomfortable question: Could this be 1997 all over again? 

The parallels are hard to ignore. Asian currencies are under pressure, fueling the risk of capital outflows. Spiking energy costs have pushed governments to roll out emergency measures, while central banks are drawing down foreign exchange reserves. 

In Thailand, policymakers have moved to ration gasoline. Meanwhile, surging pump prices in the Philippines prompted the government to declare a national emergency. Across the region, the widening trade deficits and rising inflation expectations feel reminiscent of the Asian financial crisis that began in 1997. 

But economists say the similarities may be largely superficial, thanks to more flexible exchange-rate regimes and deeper foreign exchange reserves, which provide a buffer that helps absorb some of the shock. 

“Crises can take many shapes, and the shape of this [Iran] crisis is entirely different,” said David Lubin, a senior research fellow at Chatham House.

The 1997 episode, he noted, was driven by “a toxic mixture of fixed exchange rates, high levels of short-term foreign debt, low levels of foreign exchange reserves, and elevated current account deficits.”

“These days, Asian economies – precisely because of the legacy of the late-1990s crisis – are much better protected.” 

The region’s financial architecture has also “evolved substantially over the past three decades,” with deeper local markets, broader domestic investor bases and far less reliance on short-term foreign funding, said Fesa Wibawa, an investment manager of fixed income at Aberdeen Investments.

That, he said, reduces the risk of sudden capital flight and forced deleveraging that defined the 1997 crisis.