The US-Iran conflict has now entered its fourth day, and the world is watching it closely not only because of the deepening military confrontation it has plunged the entire Middle East into, but also because of the jolts it has sent to global energy markets.
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While Iran’s decision to close the Strait of Hormuz is expected to disrupt global energy markets, Asian countries are likely to bear the brunt of the impact, CNBC reported.
The development came on Monday, days after the United States and Israel launched strikes on Iran, targeting the Islamic Republic’s military and naval forces and killing some of the country’s top officials, including Supreme Leader Ayatollah Ali Khamenei. A senior official of the Islamic Revolutionary Guard Corps (IRGC) announced the closure of the Strait of Hormuz and warned that any vessel attempting to pass through the artery would be targeted.
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The Strait of Hormuz is located between Iran and Oman and acts as a key artery for global oil trade. By 2025, nearly 13 million barrels per day will pass through the waterway, accounting for 31% of all seaborne oil flows, CNBC reported, citing data from Kpler.
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The prolonged closure of the strait is likely to lead to a sharp increase in oil prices, with some analysts expecting oil to exceed $100 a barrel. Brent, the global benchmark, has risen nearly 10% since the conflict broke out and was last up 2.6% at $80 a barrel.
According to Kpler, nearly 20% of global LNG exports from the Persian Gulf are at risk, particularly shipments from Qatar that pass through the Strait of Hormuz. Qatar, one of the world’s biggest LNG exporters, suspended production on Monday after Iranian drones hit facilities in the industrial cities of Ras Laffan and Mesaieed.
Nomura said in a note on Monday: “In Asia, Thailand, India, Korea and the Philippines are most vulnerable to higher oil prices due to their high reliance on imports, while Malaysia would be a relative beneficiary as it is an energy exporter.”
Closure of the Strait of Hormuz: Areas that could be affected
South Asia: Nomura’s report suggests that South Asia will bear the biggest impact from the closure of the strait, especially in terms of LNG supplies. According to Kpler, Qatar and the United Arab Emirates (UAE) account for 99% of Pakistan’s LNG imports, at least 72% to Bangladesh and 53% to India.
Pakistan and Bangladesh are extremely vulnerable due to limited warehousing and procurement flexibility. Bangladesh already has a major structural gas deficit, and Dhaka has a deficit of over 1,300 million cubic feet per day, according to the Institute for Energy Economics and Financial Analysis. But India faces the largest combined exposure in the region as more than half of its LNG imports are linked to the Persian Gulf region and a significant portion is indexed to Brent, the analyst said, adding that the Hormuz oil surge would increase the cost of oil imports and LNG contract prices, causing a double physical and financial shock.
Similarly, nearly 60% of India’s oil imports come from the Middle East, and a permanent blockade would therefore increase both energy import costs and current account pressures.
China: While the Hormuz closure could test China’s energy security, a CNBC report suggests the country’s reserves and alternative supplies offer some buffer. China, the world’s largest oil importer, buys over 80% of Iran’s crude, while nearly 30% of its LNG imports come from Qatar and the United Arab Emirates. According to UBP estimates, almost 40% of China’s oil imports pass through the Strait of Hormuz.
Japan and South Korea: The Gulf region supplies nearly 75% of Japan’s oil imports and at least 70% of imports to South Korea. In terms of LNG imports, the exposure of Japan and South Korea is less compared to South Asia. South Korea takes 14% of its LNG imports from Qatar and the United Arab Emirates, while Japan only takes 6%. According to Kpler’s report, supplies are limited for both countries. While Korea holds nearly 3.5 million tons of LNG, Japan has around 4.4 million tons in stock, enough for two to four weeks of stable demand.
Southeast Asia: The report suggests that in most of Southeast Asia, the immediate impact would likely be higher costs rather than outright shortages. Spot-dependent LNG customers could face soaring switching costs as Asian importers compete with Europe for Atlantic cargo, the analyst said.
Thailand stands out in Nomura’s assessment as particularly vulnerable to higher oil prices, given the scale and immediacy of the external shock. The country has Asia’s largest net oil imports at 4.7% of gross domestic product (GDP), and every 10% increase in oil prices could widen its current account deficit by about 0.5 percentage points of GDP.
