Hormuz Strait Closure: Asia Braces for Economic Shockwave as Inflation Fears Mount

A new report warns that Asian economies, heavily reliant on Middle Eastern oil and gas, face an "extreme challenge" if Iran acts on renewed threats to close the vital Strait of Hormuz, with soaring energy costs poised to spark severe inflation across the region.

 

Asia, one of the world's most energy-dependent regions, is on high alert as the prospect of Iran closing the Strait of Hormuz re-enters the global debate, according to a Nikkei Asia report.

 

The waterway, a crucial chokepoint for approximately 20% of the world's oil and natural gas, has long been a flashpoint for geopolitical tensions.

 

The discussion gained fresh urgency after Iran's parliament approved a measure allowing the strait's closure should the United States launch an attack on Iranian nuclear facilities.

 

Although a final decision remains unconfirmed, the news has already pushed Brent crude oil prices up by over 5%.

 

 

 

Asia Most Vulnerable

Analysts at Rystad Energy unequivocally state: "Asia will be the most impacted by a crude oil export shortage" if the Strait of Hormuz is disrupted.

 

The region's economies are critically dependent on crude oil transported through this narrow channel, with over 80% of the nearly 15 million barrels per day passing through it destined for Asian markets.

 

South Korea and Japan are particularly exposed, collectively receiving 24% of all crude oil shipped via the strait. Other significant importers include Singapore, Taiwan, Thailand, Malaysia, Pakistan, and Vietnam.

 

Furthermore, Asia accounts for roughly 60% of the approximately 5 million barrels per day of refined petroleum products, such as petrol and diesel, that transit the strait.

 

The reliance extends to Liquefied Natural Gas (LNG), with Asia receiving over 80% of LNG exports from major producers Qatar and the UAE via Hormuz. China and India alone account for about 40% of this total volume.
  



 

Unlikely, But Threats Remain

Despite the heightened rhetoric and recent tensions, analysts largely believe a complete closure of the Strait of Hormuz by Iran remains highly improbable.

 


"A full closure of the Strait of Hormuz is highly unlikely, as are attacks on Persian Gulf energy infrastructure," stated analysts from the Eurasia Group, estimating the probability of such an event at only 20%.


 

They suggest that Iran is unlikely to escalate attacks on energy targets to a severe degree as long as its own energy export facilities remain secure. However, the Eurasia Group warned of an increased likelihood of threats to oil tanker shipping in the future.

 

One crucial deterrent for Iran is the potential backlash from China, its largest oil buyer and a vital ally.

 

Takahide Kiuchi, Executive Economist at Nomura Research Institute and a former Bank of Japan policy board member, underscored China's role in shielding Iran from Western sanctions.

 


"Closing the Strait of Hormuz would create significant damage to China," Kiuchi noted, concluding that the barriers to such a closure are therefore extremely high.
 
 



 

Inflationary Warning

Should a closure indeed occur, Goldman Sachs analysts predict a severe market reaction.

 

They estimate that even a 50% reduction in oil flow through Hormuz for one month, followed by a 10% reduction for the subsequent 11 months, could send Brent crude prices surging briefly to around $110 per barrel.

 

European natural gas prices could also spike to levels last seen during Europe's 2022 energy crisis.

 

Stefan Angrick, Senior Economist at Moody's Analytics, issued a stark warning that higher energy prices would invariably lead to a resurgence or acceleration of inflation across Asia. High-income nations such as Japan, South Korea, and Taiwan would be particularly vulnerable.

 

"This situation would lead to trade deficits, weaker currencies, and more severe inflation in these countries," Angrick stated. "When this happens, central banks will respond by halting interest rate cuts or even resuming rate hikes."

(2025/06/23-00:00)