Why the Hormuz disruption matters for Asia’s economies

Asia relies heavily on the Middle East for both crude oil and LNG. Several economies are directly exposed to a sustained closure of Hormuz, particularly those with limited inventories:

• The Philippines is the most vulnerable on crude oil, sourcing over 95% of imports from the Hormuz‑7¹ countries but holding only around 30 days of reserves.
• India is the most exposed on LNG, importing around two‑thirds of its LNG from Hormuz‑7 – but with only six days of LNG inventory. The risk of actual power shortages is lower because India relies heavily on coal for electricity generation.
• Singapore, Thailand and Taiwan face the highest electricity‑generation risk due to their reliance on LNG: 94% for Singapore, 64% for Thailand and around 40% for Taiwan. Supplies are diversified, but a prolonged outage would still tighten the system.

The vulnerability is not simply about energy supply: it is about how quickly inventories run down and how easily supplies can be replaced. While global LNG markets are more flexible than a decade ago, they cannot fully compensate for a sustained outage at Hormuz.

A prolonged disruption would widen energy‑import bills across the region – with sharp differences across countries:

Most exposed to negative terms‑of‑trade effects are Thailand, South Korea, India and Taiwan, which each run sizeable crude oil and LNG trade deficits (between 3% and 5.5% of GDP).

For these economies, higher energy prices would weaken external balances and add pressure to currencies. India is particularly exposed given its current account deficit of around 1% of GDP, while Thailand is vulnerable because its outsized crude oil and LNG trade deficit (-5.5% of GDP) sits alongside a relatively modest current account surplus of 2-3% of GDP.

Meanwhile, potential beneficiaries include Malaysia and Australia, which run net LNG surpluses large enough to offset crude‑oil deficits. Malaysia, in particular, would see a modest boost to growth and its current account from higher LNG prices.

For high‑deficit economies, a sustained oil price above USD 100 would erode purchasing power and dampen growth prospects.

Inflation sensitivity varies significantly across Asia. The Philippines and Thailand are among the most sensitive to rising oil prices, where a 10% rise in crude oil prices could lift consumer price indexes (CPI) by 0.8 percentage points and 0.5 percentage points respectively.

Indonesia and Malaysia are more insulated, because subsidies and administered prices slow the pass‑through from global to domestic markets. Electricity‑heavy CPI baskets in Hong Kong and Singapore mean they are more sensitive to power costs than fuel prices.

This uneven transmission complicates the policy outlook: some central banks may need to raise interest rates, while others can maintain support.

With growth slowing, inflation firming and currencies under pressure, Asian central banks face a difficult trade‑off. As a result:

• Only three central banks (China, the Philippines, Indonesia) are still expected to cut rates this year.
• Five are likely to stay on hold (Thailand, India, Korea, Taiwan, Vietnam).
• Three may need to raise rates (Malaysia, Australia, Japan).

In summary, the longer the disruption persists, the more policy space narrows.

A prolonged outage increases market volatility across Asia, especially in economies with high LNG exposure. For now, we remain:

• Constructive but cautious on Asian equities until Hormuz reopens.
• Positive on China, Japan, India, Australia, Malaysia, Taiwan and Korea – economies supported by domestic demand or by the global AI investment boom.
• More cautious on Thailand, Indonesia and the Philippines due to weaker investment momentum and policy concerns.
• Constructive on Asian currencies and fixed income under a structurally bearish US dollar view.