A narrow stretch of water – the Strait of Hormuz – is sending shockwaves across the global economy. It is not just another shipping route; it is the world’s most critical energy chokepoint. Every day, about one-fifth of global oil and LNG supply passes through it, with nearly 90 per cent of crude oil destined for Asia.
The ongoing conflict in Western Asia and disruption of the Strait has triggered what could become the region’s most severe energy supply crisis in decades.
But this isn’t just an energy story. It shows how deeply interconnected economies are today, where disruption in one region ripples across trade, transport, manufacturing, and even food security across the region.
A chokepoint for more than just energy
As tensions escalate, the Strait is becoming more than an energy bottleneck; it is emerging as a broader transport chokepoint.
The Islamic Republic of Iran sits at the centre of major regional transport networks, including the Asian Highways and Trans-Asian Railway. Critical routes – AH1, AH2, AH8 and feeder corridors – are affected, while rail links connecting Europe and Asia are under strain. Its maritime sector, one of the largest in the region, is also disrupted, amplifying the impact.
For landlocked developing countries, the stakes are higher. Many rely on Iranian ports for global market access. With hubs like Bandar Abbas and Chabahar suspending operations, alternatives are limited and unreliable.
The domino effect on trade, supply chains, remittances and tourism
The first shock is energy.
Countries such as Japan, the Philippines, Maldives, Pakistan, the Republic of Korea, Singapore and several Pacific island economies depend heavily on crude oil imports from Gulf Cooperation Council (GCC) countries, often sourcing over 50 per cent of supply from these countries. As supply tightens and prices rise, effects are felt instantly.
But the effects extend far beyond energy.
Asia-Pacific economies depend on complex global value chains, and disruption is cascading across sectors:
- High-tech industries face shortages of critical inputs like helium, essential for semiconductors and electronics.
- Automotive production is affected by disruptions in naphtha, steel, aluminium and bromine.
- Chemicals and fertilisers are becoming costlier and harder to source, threatening crop yields.
- Textile manufacturers face shrinking margins as polyester prices rise.
- Construction slows as materials like steel and cement become harder to transport.
Logistics is also under strain. Shipping diversions are adding 10-15 days to transit times, delaying critical goods from EV batteries to pharmaceutical inputs. Rerouting has created congestion at maritime hubs across South-East and South Asia, risking wider instability across regional and global shipping networks.
The combination of logistics bottlenecks, supply shortages and depleting reserves could contract regional manufacturing if disruptions persist. What was once a well-functioning system is now under severe stress.
Beyond goods, the crisis is affecting remittances and tourism.
For many South Asian countries, remittances from GCC countries are vital. In Nepal, Pakistan, Sri Lanka and Bangladesh, about half of remittances originate there. India receives nearly a third, while in the Philippines remittances account for 7.3 per cent of GDP, with 17.8 per cent from GCC countries.
If GCC economies weaken due to the conflict, millions of Asia-Pacific migrant workers could be displaced.
Tourism is also taking a hit. Disruptions along Europe-Asia-Pacific routes and rising fuel costs are increasing airfares and reducing demand. The sector is reportedly losing around US$600 million daily. Economies highly dependent on tourism, such as Fiji (38.2 per cent), Maldives (31.4 per cent), Cambodia (14.2 per cent) and Thailand (12.4 per cent), are particularly vulnerable.
The bigger picture: inflation, growth and uncertainty
Many macroeconomic indicators are flashing red.
Energy and commodity prices have surged – oil by 45 per cent, gas by 55 per cent and fertilisers by 35 per cent. Freight costs and insurance premiums are rising, increasing trade costs. Financial markets are reacting with stock declines, currency depreciation and rising bond yields.
Provisional ESCAP projections suggest headline inflation in developing Asia-Pacific could rise to 4.6 per cent in 2026, up from 3.5 per cent in 2025.
At the same time, growth is slowing. Higher energy costs, weaker trade and declining investor confidence are dragging economic activity. GDP growth for 2026 is projected at 4.0 per cent by ESCAP, down from 4.6 per cent in 2025 and well below the pre-pandemic average of 5.5 per cent.
The extent of impact varies across economies, depending on: (i) dependence on GCC oil and LNG; (ii) trade and value chain linkages with Iran and GCC countries; (iii) reliance on remittances and tourism for foreign exchange earnings; (iv) energy resilience, including reserves and alternative supply chains; and (v) economic structure, particularly reliance on energy-intensive industries.
What happens next? Three possible paths
The trajectory depends on the conflict’s duration and intensity.
If short-lived, impacts may remain contained with policy measures helping to stabilise economies.
If prolonged without major infrastructure damage, the region may face sustained slowdown, higher inflation and interest rates, weaker trade and investment, job losses, and rising debt vulnerabilities. It may also prompt a reassessment of energy security strategies.
If the conflict escalates and severely damages energy and transport infrastructure, consequences could be far more serious. Restoring infrastructure would take time, potentially triggering a global energy crisis, sustained logistics disruptions and recession in the most affected economies.
The human cost: food, poverty and inequality
While markets react quickly, human impacts unfold more gradually but more deeply.
Rising fertiliser costs are increasing food production costs, pushing up food prices and worsening food insecurity. Poorer households, which spend a larger share of income on food, are hit hardest.
Combined with slower growth, job losses, weak social protection, and declining remittances, this could lead to rising poverty and widening inequality across the region.
A clear lesson: building resilience is the key
If there is one takeaway, it is this: economic interdependence is a double-edged sword.
Asia-Pacific’s integrated systems of trade, transport and energy have driven growth and efficiency but also created shared vulnerabilities. Disruptions in one part of the system can cascade rapidly across the region, as seen during the Covid-19 pandemic as well.
The path forward is not retreating from economic interdependence, but making it more resilient.
Led by domestic industrial and trade policies and supported by regional cooperation, diversification across sectors (trade, transport, energy) and dimensions (sources, routes, products, markets) must become a priority to increase economic resilience.
At a strategic level, policymakers must balance growth with resilience. Reducing vulnerabilities should be as important as expanding output.
Why regional cooperation matters now more than ever
No country can navigate this alone.
Regional cooperation platforms and mechanisms provided by ESCAP can help coordinate policy responses, share best practices and build long-term resilience. From energy security to transport connectivity and trade facilitation to economic diversification, collective action will determine how effectively the region manages this crisis and prepares for future shocks.
What is happening in the Strait of Hormuz is a powerful reminder: in an interconnected world, distance offers no insulation. A regional conflict can quickly become a shared economic challenge, testing not just markets, but systems, policies and resilience itself.
More information on this analysis is available at this presentation.
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