How the Strait of Hormuz endangers the very foundation of Asia’s economic stability

Asia Faces Fallout as Iran Conflict Disrupts Energy Supplies

As the conflict involving Iran stretches into its fourth week, the brunt of the crisis is being felt by nations that played no part in igniting it.

Following military actions by the U.S. and Israel, Iran responded by shutting down the Strait of Hormuz—a crucial maritime route for nearly all oil and gas exports from the Persian Gulf. This blockade has severely restricted shipments from leading energy producers such as Qatar, Saudi Arabia, and the United Arab Emirates, creating a dire situation for Asia, which is heavily dependent on imported energy resources.

Columbia University historian Adam Tooze remarked at the Jefferies Asia Forum in Hong Kong, “Asia stands at the epicenter of this crisis, suffering the most significant collateral consequences.”

The ongoing conflict with Iran threatens to unleash a wave of inflation that could destabilize the world’s primary economic growth region. For decades, governments have relied on interest rate cuts and fiscal stimulus to counteract crises, but these strategies may prove ineffective in the current scenario.

According to Louis-Vincent Gave, CEO of Gavekal Research, monetary and fiscal policies had already become more accommodative worldwide before the Iran crisis erupted. He noted, “Whether in Japan, Europe, the United States, or the UK, we were already experiencing an inflationary boom.”

Now, a sudden disruption in energy supplies threatens to drive inflation even higher while stalling economic growth—a situation Gave describes as an “inflationary bust,” more commonly known as stagflation.

Approximately 84% of crude oil passing through the Strait of Hormuz is destined for Asian markets, while the U.S. now imports very little via this route. This imbalance is reflected in oil prices: West Texas Intermediate hovers near $100 per barrel, whereas Dubai crude has surged beyond $160.

The natural gas sector has also been impacted. Iranian attacks have damaged critical infrastructure in Qatar, which supplies about 20% of the world’s liquefied natural gas. Following drone and missile strikes on the Ras Laffan Industrial City—the globe’s largest LNG export facility—QatarEnergy declared force majeure on deliveries.

A Region in Crisis

Governments throughout Asia have acted swiftly to cushion the blow, implementing measures such as price controls, rationing, and releasing emergency reserves.

South Korea, for instance, has introduced its first fuel price cap in three decades. The country is urgently seeking alternative oil sources that bypass Hormuz and is accelerating its transition toward nuclear energy.

Despite these efforts, South Korea’s economy expanded by only 1.0%—its weakest performance in five years and below the 2.0% annual growth rate that Peter Kim of KB Securities considers necessary for political stability.

Peter Kim cautioned in an interview with Fortune, “A spike in oil prices, combined with a depreciating currency and a central bank constrained by inflation, could seriously threaten that 2% growth target.”

Japan’s Prime Minister Sanae Takaichi has authorized the release of about 80 million barrels from national oil reserves. Tokyo now faces both an energy and diplomatic challenge, as U.S. President Donald Trump has publicly urged allies like Japan to join efforts to reopen the strait, citing their reliance on its energy flows. However, Takaichi has pointed to constitutional restrictions on military action as a reason for Japan’s reluctance to deploy naval forces.

Ken Jimbo, a professor at Keio University, described the situation as “a perfect dilemma” in comments to Fortune: “We don’t want to antagonize the United States, especially given the transactional approach of President Trump: ‘I protect you, so why won’t you protect me?’”

Emerging Markets Struggle to Cope

Developing economies are resorting to increasingly drastic measures. Thailand, which imports 70% of its oil, has capped diesel prices, encouraged remote work, and advised citizens to wear lighter clothing to reduce energy use.

Tanawat Ruenbanterng of Tisco Securities explained to Fortune, “When global oil prices rise, our GDP automatically falls.” With a weakening currency and rising bond yields, Thailand’s government has little fiscal flexibility. “They simply can’t subsidize indefinitely,” Tanawat added.

Other countries are also implementing emergency policies. Indonesia is keeping retail fuel prices stable ahead of the Eid al-Fitr holiday, even though this risks exceeding its fuel subsidy budget of 381 trillion rupiah (about $22.6 billion). Bangladesh has set daily fuel purchase limits and closed universities early, while Sri Lanka has made Wednesdays a holiday to conserve fuel.

Even advanced economies are feeling the strain. On March 20, the International Energy Agency advised member countries—including Australia and the UK—to consider carpooling or remote work to conserve fuel.

Looking Ahead: Shifting Energy Strategies

China, the world’s top oil importer, has temporarily banned the export of diesel, gasoline, and jet fuel until at least the end of March to prevent domestic shortages. This move has left Southeast Asian countries scrambling to find alternative suppliers.

As a result, some nations are turning back to coal—a fuel many hoped to phase out. Countries such as South Korea, Thailand, and Bangladesh are rapidly increasing coal-fired power generation to offset the loss of LNG imports.

Louis-Vincent Gave told the Jefferies audience, “Coal remains the most cost-effective way to generate electricity—unless you factor in environmental costs.”

This article was adapted from a report originally published on Fortune.com.