"Strait of Hormuz Closure Would Hit Asia Hardest, Sparking Fears of Surging Energy Prices and Inflation"

"Strait of Hormuz Closure Would Hit Asia Hardest, Sparking Fears of Surging Energy Prices and Inflation" 

 

Iran is threatening to close the "Strait of Hormuz," a critically important shipping lane that serves as a chokepoint for roughly 20% of the world's oil and natural gas. This threat is a potential retaliation if the U.S. were to attack its nuclear facilities. Although no final decision has been made, the threat alone has already caused oil prices to spike.

Why should Asia be particularly concerned? This is because Asia is the biggest customer, heavily reliant on energy transported via this route:

Crude Oil: Over 80% of the nearly 15 million barrels of crude oil that pass through the strait each day is destined for Asia. Key customers include Japan, South Korea, China, India, and Thailand.

Liquefied Natural Gas (LNG): Asia receives over 80% of the LNG shipped through the strait, primarily from Qatar and the UAE.

If the strait were to be closed, these energy shipments would come to an immediate halt, causing Asia to face the most severe energy shortage in the world.

So, will Iran actually close it? Most analysts believe the chance of an actual closure is very low (estimated at around 20%). The primary reason is "China."

China is both a key political ally to Iran on the world stage and its largest oil customer.

Closing the strait would cause massive damage to the Chinese economy, and Iran would not want to displease its major ally.

However, instead of a complete shutdown, Iran might choose to harass oil tankers in the region.

 

What would happen if it were actually closed? Here are the anticipated impacts:

1. Skyrocketing Oil Prices: Brent crude oil prices are projected to potentially surge to $110 per barrel.

2. Soaring Inflation: Higher energy prices would drive up the cost of all other goods and services, leading to severe inflation, especially in Japan, South Korea, and Taiwan.

3. A Chain Reaction of Economic Problems: Countries would face trade deficits (from paying more for energy), their currencies would depreciate, and central banks might be forced to raise interest rates to combat inflation, further burdening their economies.

 

In summary, although the probability of Iran completely closing the Strait of Hormuz is low, the increased tension alone is enough to cause significant disruption to energy prices and pose a major challenge to the economies of the entire Asian continent.