Strait of Hormuz Tensions Spark Economic Jitters Across Asia

 

One of the world’s most pivotal maritime chokepoints— the Strait of Hormuz—– has once again emerged as a strategic flashpoint amid escalating military tensions in the Middle East. Iran’s parliament has endorsed a motion to close the strait in direct response to recent U.S. airstrikes on its nuclear and military installations.

While formal closure must still receive approval from the Supreme National Security Council, the mere prospect is already rattling global energy markets and unsettling nations that heavily rely on Middle Eastern energy exports.

The strait connects the Persian Gulf with the Gulf of Oman and spans just 33 kilometers at its narrowest point, with shipping lanes squeezed into even tighter channels. In 2024, nearly 20 percent of the world’s crude oil—approximately 20 million barrels daily—and a similar share of global LNG supplies passed through this corridor. A sudden disruption could derail over $2 trillion in trade, potentially sending oil prices soaring beyond $120 per barrel and triggering inflationary ripple effects across economies.

Asian Economies Brace for Impact

India stands especially exposed to the risk. Roughly half of its crude imports traverse the Strait, as do a majority of its LNG shipments. Analysts estimate that a $10-per-barrel oil price rise would cost India an additional $13–14 billion annually and add up to 0.3 percentage points to its current account deficit.

Should crude hover between $80 and $90 in fiscal year 2026, India’s trade deficit could climb to 1.5–1.6 percent of GDP, exerting pressure on the rupee and fan inflation. Industries like petrochemicals, tyres, and aviation—along with state oil refiners—could see profit margins squeezed, although upstream producers might benefit from higher benchmark prices.

China, the world’s biggest oil importer and a major purchaser of heavily discounted Iranian crude, also faces disruption. Its independent refiners depend significantly on Iranian oil delivered via the strait, as do its petrochemical and LPG users. Should the strait be blocked, demand would shift toward alternatives like Middle Eastern barrel types and Russian ESPO crude, inflating prices globally as Chinese buyers outbid each other in the spot market.

Other energy-importing nations in Asia—including Japan and South Korea—also depend heavily on Gulf oil and LNG. A supply squeeze would ripple into power plants, manufacturing sectors, and household energy costs, forcing central banks to contend with higher inflation.

The potential closure would reverberate far beyond Asia

Europe still relies on LNG transited through the region, and shipping disruptions could force vessels to reroute via longer, more expensive passages like the Cape of Good Hope. Insurance premiums would spike, freight costs would rise, and global supply chains—including critical metals like aluminium—could experience bottlenecks if raw materials are delayed.

Initial market reactions have already been dramatic. Brent crude jumped approximately 11 percent in just one week, settling near $77–80 per barrel as traders factored in the heightened geopolitical risk premium. Analysts suggest prices could exceed $100 in the event of a closure—and under prolonged tension, even reach $150. Despite these projections, some market observers caution that Iran is unlikely to fully implement a closure, given its own reliance on strait transit and the risk of diplomatic backlash, particularly from China.

Strategic Considerations and Diplomatic Stakes

Any move to close the Strait of Hormuz represents a high-stakes gamble for Tehran. Over 90 percent of Iran’s oil and LNG exports flow through that passage, meaning a shutdown would compromise its revenue streams and antagonize key customers and allies. Moreover, military experts caution that obstructing the strait could provoke a robust U.S., UK, or French military response—echoing past confrontations during the Iran‑Iraq war.

Nonetheless, some regional lawmakers have framed the threat as a legitimate form of retaliation. With naval assets deployed and enhanced maritime patrols underway, the situation remains precarious. Security analysts warn that even temporary seizures, mining, missile harassment, or cyber interference could qualify as an effective disruption.

Despite the danger, trade through the Strait has not ceased—though some operators have temporarily rerouted vessels or paused transits. The risk of oil prices surging near $80–90 per barrel remains, though short-term spikes may be eased by drawdowns from strategic reserves or rerouting flows via pipelines.