The de facto closure of the Strait of Hormuz following the US and Israeli offensive against Iran has caused an unprecedented energy supply crisis, with Asian economies bearing the heaviest strain as tanker traffic through the world’s most important oil chokepoint comes to a halt.
Japan and South Korea face the greatest risk because they are overwhelmingly dependent on fossil fuel imports that pass through the strait.
Tanker traffic is stalled
The cost of hiring supertankers to transport oil from the Middle East to China soared to a record high of more than $423,000 a day on Monday, double from Friday’s level, according to LSEG data. Iran’s Revolutionary Guards declared a blockade of the strait and threatened to open fire on ships attempting to cross.
The unrest follows the killing of Iran’s Supreme Leader Ayatollah Ali Khamenei in a joint US-Israel attack on Saturday, which prompted Tehran to launch retaliatory attacks on several Gulf states. At least four ships have been damaged in the Gulf area, and major shipping and insurance companies have effectively withdrawn from the area.
Mr. Kupler acknowledged that insurance companies withdrew war risk coverage, leading to the withdrawal of commercial operators and the de facto shutdown. There are only a small number of Iranian- and Chinese-flagged vessels, many of which operate outside Western insurance and classification systems.
Most exposed in Asia
According to the U.S. Energy Information Administration, about 84% of the crude oil and 83% of the LNG passing through the Straits in 2024 went to Asian markets. China, India, Japan and South Korea alone account for approximately 75% of the oil that passes through this chokepoint.
The Zero Carbon Analytics report ranks Japan as the most vulnerable country with a risk score of 6.4, followed by South Korea at 5.3 and India at 4.9. Japan obtains 87% of its total energy from imported fossil fuels, while South Korea relies on imports for 81%.
Japan convened a National Security Council to assess the situation, while South Korea’s prime minister ordered a government-wide emergency response.
Both countries have large oil reserves as a short-term buffer. Japan’s public and private oil stockpiles are equivalent to approximately 254 days’ worth of domestic consumption, but South Korea has more than 210 days’ worth of oil.
But LNG stockpiling is a different story. According to the IEA, Japan has no underground gas storage facilities and its terminal capacity can only cover just over a month’s consumption. South Korea faces similar LNG vulnerabilities. Given LNG’s important role in power generation, a prolonged closure of the strait would pose a more immediate threat to both countries from gas than oil shortages.
Kupler added that India faces the most serious risks in the short term and is likely to quickly turn to Russian oil, while China, which recently eased its intake of Russian oil, is likely to abandon its restraints if the conflict drags on.
Crude oil price forecasts diverge significantly
Brent crude oil prices on Monday rose about 9% from Friday’s close, settling around $78 a barrel, but analysts’ forecasts diverged widely due to the period of turmoil.
The closure would cause a double supply shock, halting current exports while leaving OPEC’s spare capacity behind the blockade. Analyst forecasts range from the low $80s per barrel in the event of short-term disruption to $100-$120 per barrel in the event of a prolonged standoff, with risk premiums potentially pushing prices significantly higher than model forecasts.
Alternative routes are not enough
Bypass options are limited. Saudi Arabia’s East-West Pipeline and the UAE’s Abu Dhabi Pipeline together have about 3.5 million barrels per day of unused capacity, less than 20% of full closure, according to Rystad. The IEA’s strategic stockpile releases may help, but member countries account for less than half of global oil demand.
With Iran declaring “all-out war” against Israel and the United States, the crisis has highlighted the fragility of Asian economies’ fossil fuel supply chains and could accelerate energy diversification efforts.
