Asia pays the most for Hormuz

China, India, Japan and South Korea take more than eighty per cent of the petroleum that passes through the Strait of Hormuz. So while Western financial centres argued over what the closure would do to inflation figures, Asian industrial economies took the physical hit, and it has been severe.

How Asia came to depend on the Gulf

The dependence built up over decades. As Asian economies industrialised, the Gulf was the nearest large source of crude, and refineries across the region were built to process its medium and heavy sour grades. Japan's reliance deepened after the Fukushima disaster in 2011 shut its nuclear plants and forced it to import more fuel for power, and only part of that nuclear fleet has returned. China and India, the fastest-growing importers of the past two decades, sourced much of their extra demand from the same suppliers. Proximity lowered shipping costs in normal times, and it concentrated the risk.

No shale to fall back on

The United States can lean on its own shale output. Asia's big economies cannot. They depend almost entirely on crude shipped by sea to run their factories and petrochemical plants, and Japan and South Korea get over eighty-five per cent of their crude straight from the Persian Gulf. Within weeks of the closure, Asian refiners had cut run rates and started rationing inventory. They were also bidding for scarce West African and Atlantic Basin spot cargoes at painful premiums.

Replacing Gulf crude is harder than finding any barrel. Refineries tuned for heavy, high-sulphur oil run less efficiently on the light, sweet crude that dominates Atlantic supply, producing different yields of diesel, jet fuel and petrochemical feedstock. Cargoes from West Africa or the Americas take weeks longer to arrive than a voyage from the Gulf, which ties up tankers that are already scarce. The premium Asian buyers pay reflects all of that as well as the price of crude.

Petrochemicals suffer twice. Many Asian crackers, which turn naphtha into the building blocks of plastics, rely on naphtha exported from Gulf refineries as well as on crude. With both supplies cut, chemical makers in South Korea, Japan and Taiwan face higher feedstock costs just as demand for their products weakens.

Some have other doors

The exposure is not uniform. India and China have spent the years since 2022 buying large volumes of discounted Russian crude, which reaches them by routes that avoid the Gulf entirely, and China also receives oil by pipeline from Russia and Kazakhstan. Those channels give them some flexibility that Japan and South Korea lack. China's purchases from Iran, however, loaded at terminals inside the Gulf, are trapped along with everyone else's, and Russian supply cannot be expanded quickly enough to cover the gap.

Currencies take the strain

The damage shows up quickly in the currency markets. Crude is priced in dollars, and the bigger import bills have blown trade deficits wide open. The Japanese yen, the South Korean won and the Indian rupee have all fallen hard, which makes imported goods dearer still and adds to inflation.

The mechanism feeds on itself. A larger oil import bill means importers must sell more of their own currency to buy dollars, which weakens the exchange rate, which raises the local price of the next cargo. Central banks can break the loop by selling dollar reserves or raising interest rates, but both have costs. Japan intervened to support the yen in 2022 and again in 2024, and it holds more than $1 trillion in reserves, so it has ammunition. India's reserves are large too, but its current account is more sensitive to oil, and the rupee has historically come under pressure whenever crude spikes.

South Korea carries its own memory. In the Asian financial crisis of 1997 a run on the won forced the country to seek an IMF rescue, and its policymakers have since built reserves and watched short-term foreign borrowing closely. The won now floats more freely, which means it absorbs shocks through the exchange rate rather than through a sudden stop, but a sharp fall still raises the cost of every imported input.

China's position is the most complex. It is the world's largest crude importer and has built substantial strategic and commercial stocks over the past two decades, but it publishes little about them, which makes its capacity to wait hard to judge. Its refiners are also large exporters of refined products, and Beijing controls those exports through quotas, so it can keep more fuel at home by cutting export permits, a choice that would tighten product markets elsewhere in Asia.

Winners and losers

Exporters of Atlantic Basin crude, from the United States to Brazil, Guyana and West Africa, are the clearest beneficiaries, along with Russia, whose barrels are suddenly in greater demand among Asian buyers. Owners of tankers operating outside the Gulf collect higher freight rates. The losers are Asian manufacturers that run on imported energy, their workers, and consumers whose currencies are buying less. Asian central banks face a harder trade-off than the Fed, because their inflation is being imported through the exchange rate as well as through fuel.

Buffers that buy time

The strongest counterargument is that Asia prepared for this. Japan and South Korea hold large government and private oil stocks built up since the 1970s, governments can subsidise fuel to soften the blow, and reserves allow central banks to lean against currency falls. Those buffers can carry the region through weeks or a few months. They were not designed for a closure that lasts through the year, and each week drains them further.

The signals to watch are refinery run rates in Japan, South Korea, China and India, monthly trade balances, changes in foreign-exchange reserves that reveal intervention, the premium for Gulf-grade crude delivered to Asia, and manufacturing surveys across the region. Asia is paying most of the bill for the Hormuz blockade. If the strait stays closed for long, the region's big manufacturers are likely to slide into industrial recession, with Japan and South Korea probably first in line.