With war in the Middle East still raging on, the International Monetary Fund is ringing alarm bells for Asia’s energy security and China, Japan and India, among the world’s biggest oil and gas consumers, are already making moves to stave off a crisis.
The Strait of Hormuz, the chokepoint through which a fifth of global crude supplies pass, is effectively closed for the sixth day since the US and Israel attacked Iran, which in turn launched retaliatory strikes on its Gulf neighbours and other Arab nations in the broader Middle East.
With one of the worst conflicts in the Middle East showing no signs of abating, IMF managing director Kristalina Georgieva on Thursday said the world is in a “potentially prolonged period of flux” and if the conflict is prolonged it has “obvious potential to affect global energy prices, market sentiment, growth and inflation.
“For most of Asia, what is at stake is energy security and, through that, confidence,” she said at the Asia in 2050 Conference in Bangkok.
China, the world’s second-largest economy, along with Japan and India, are barometers of global financial health and the impending energy crisis in the Asian powerhouses would dent global growth prospects.
“We are assessing and quantifying the regional and global economic ramifications, and you will find this reflected in our World Economic Outlook to be published next month,” Ms Georgieva said.
Not closed, but closed
Though the Strait of Hormuz is not officially closed, the number of ships sailing through has drastically reduced to a trickle after the Islamic Revolutionary Guard Corps warned vessels to steer clear of the narrow waterway.
Crude tanker transits through the strait have plunged by 88 per cent, while the number vessels carrying liquefied petroleum gas is down 94 per cent, the latest data from analytics company Kpler shows.
At least 200 ships, including oil and LNG tankers as well as cargo ships, remained at anchor in open waters off the coast of major Gulf producers including Iraq, Saudi Arabia and Qatar, according to Reuters estimates based on ship-tracking data from the MarineTraffic platform.
Hundreds of other vessels remained outside the channel unable to reach ports.
US President Donald Trump has said the US will begin escorting tankers through the Strait of Hormuz if necessary, while French President Emanuel Macron said a military operation is on the table to open up the waterway.
“Reviving the trade around Hormuz is of great interest for everyone, the Gulf nations, including Iran, as sellers, as well as China, India and other non-conflict involved parties as buyers,” Norbert Rucker, head economics and next-generation research and Swiss bank Julius Baer, said in a note on Thursday. “There could be more talk over the coming days around safeguarding the ships with Iranian assurances.”
However, shipping operators are steering clear of the narrow waterway as insurance premiums skyrocket. At least eight vessels have suffered damage or have been hit in the area since the conflict began on Saturday.
Moves in Asia
With virtually no oil or fuel passing through the Gulf, refiners across Asia, such as China, Japan, Indonesia and India, have halted exports and are looking at other sources of crude.
China, which procures about half its oil imports from the Gulf, including almost all of Iran’s crude shipments, has told its largest oil refiners to suspend exports of diesel and gasoline as the war in the Middle East disrupts crude being delivered from one of the world’s largest energy-producing regions.
Chinese officials met refinery executives and called for a temporary suspension of refined-product shipments to begin immediately, Bloomberg cited sources familiar with the matter as saying.
The refiners have also been asked to stop signing new contracts and negotiate the cancellation of already agreed shipments.
In Japan, oil refiners have asked the government to release oil the country’s strategic petroleum reserves. The companies are holding talks to access government stockpiles as well as oil stored in tanks that are leased to producing countries, Bloomberg reported on Thursday.
Japan is vulnerable to the effective closure of the Strait of Hormuz as the country receives more than 90 per cent of its oil from the region.
Other Asia nations are looking to bypass the supply chains, or at least minimise the impact of disruption on their businesses. Indonesian refiners are assessing the option of sourcing crude oil from the US, while Thailand is looking at extra oil and LNG deliveries, while cutting consumption.
India's options
New Delhi is more willing to take crude shipments from Russia, which Indian refiners have been avoiding due to the complexities of ongoing India-US trade talks.
The destination of two Russian oil cargoes apparently bound for East Asia has switched to India. The tankers carrying around 1.4 million barrels combined of Urals oil, which were loaded in the Baltic and Black seas, are expected to discharge at Indian ports this week, Bloomberg reported on Thursday.
Russian crude was once popular among Indian refiners, but they had to cut back orders after India agreed to hold trade talks with the US. However, the effective closure of the Strait of Hormuz makes Russian crude a handy alternative to oil supplies from the Gulf.
India’s dependence on energy imports makes its economy highly vulnerable to oil price swings and supply disruptions. The third-largest Asian economy and the world’s most populous nation imports 90 per cent of oil needs, half of which come from the Gulf.
Oil prices have already surged by about 15 per cent in the six days since the conflict broke out. Brent, the benchmark for about two thirds of global oil, was trading 1.57 per cent higher at $82.68 per barrel at 2.46pm UAE time. West Texas Intermediate, the gauge for US crude, rose 2.13 per cent to $76.25 a barrel.
If the conflict in the Middle East is to “persist or escalate”, it could affect the Indian economy in sectors from basmati rice, fertilisers and diamond polishing to travel operators and airlines, “given their direct exposure to the region”, Crisil Ratings said.
Crude-linked sectors, such as downstream oil refiners, tyres, paint, specialty chemicals, flexible packaging and synthetic textiles, could also be affected,” Crisal said on Thursday.
Though we are still in the early days of the conflict, Fitch Ratings expects the problem in the strait to be “temporary, given its vital economic role”, said Angelina Valavina, managing director of corporates.
“This, alongside global oil market oversupply, should limit oil price rises and mitigate any potential disruptions to Iranian oil supply,” she said. “We do not expect significant upside to our December 2025 assumption of an average Brent oil price of $63 per barrel for 2026.”
LNG dynamic
While about 20 per cent of global crude passes through the strait, it is an equally vital waterway for the seaborne global LNG trade, especially supply to Asia customers including India.
Qatar accounts for about a fifth of global LNG supply, with an annual production of around 77 million tonnes per year. Most of state-owned QatarEnergy's supplies are delivered under long-term contracts to Asian buyers.
However, QatarEnergy on Wednesday declared force majeure on LNG deliveries to affected buyers after halting production, following Iranian strikes on its large Ras Laffan complex.
The move formalises the suspension of cargo deliveries without a fine from the world’s largest LNG exporter.
Unlike Saudi Arabia and other Gulf producers, which can export crude through Red Sea terminals using pipelines, Qatar's LNG moves only through the Strait of Hormuz.
The global LNG markets operate with limited spare capacity. Sustained cuts affect spot markets, freight rates and the petrochemical industry.
European gas prices rose by 52 per cent following the Iranian strike on Ras Laffan, the largest jump in price since Russia's invasion of Ukraine in 2022.
The rise in gas prices and failure to delivered the contracted cargoes deepen troubles for import-dependant economies such as India.
India’s top LNG importer Petronet has also declared force majeure and supplies to Indian industry has been slashed after the loss of Qatari gas.
“If supply tightness persists, price-sensitive industrial consumers may seek alternative fuels, such as liquefied petroleum gas, furnace oil, or naphtha. The extent of this feedstock diversification will be a function of the cost-benefit maths,” said Sehul Bhatt, director at Crisil Intelligence.
“Elevated LNG prices can also translate to costlier gas supplies to fertiliser plants. This, in turn, can increase the government’s subsidy burden,” he added.
