Strait of Hormuz Closure: Oil Prices, Stagflation Risk, and Implications for Asia
Author: Fabien Yip, Market Analyst, IG
Publication Date: March 11, 2026
Overview
The Strait of Hormuz, a critical maritime passage for global oil and liquefied natural gas (LNG) trade, has been effectively closed to commercial shipping since late February 2026 due to military actions involving the US and Israel against Iran. This unprecedented disruption has significant implications for oil prices and economic stability, particularly in Asia.
Impact on Oil and LNG Prices
As a result of the closure, Brent crude oil prices have surged towards $120 per barrel, while LNG prices in northeast Asia have more than doubled to $22.5 per MMBtu. The International Energy Agency (IEA) estimates that even with alternative pipeline routes, around 16 million barrels per day of oil flow remains at risk. Additionally, QatarEnergy has suspended production at its major LNG facility, further exacerbating supply concerns.
Regional Vulnerability
Asia is particularly vulnerable to the closure of the Strait of Hormuz, with approximately 84% of crude oil and condensate shipments through the strait destined for Asian countries. Japan and South Korea are the most affected, relying heavily on oil imports from the Middle East. Japan imports about 95% of its crude from this region, while South Korea sources around 70% of its oil and a significant portion of its LNG from there. In contrast, China has a more resilient position due to its diversified energy sources and substantial crude stockpiles.
Stagflation Risks
The prolonged closure and rising commodity prices raise concerns about stagflation—a scenario characterized by stagnant economic growth and rising inflation. The International Monetary Fund (IMF) has indicated that a sustained 10% increase in oil prices could reduce global economic output by 0.1-0.2% and increase inflation by 0.4 percentage points. With current prices approximately 30% above pre-conflict levels, the potential inflationary impact could be significant.
Market Reactions and Future Outlook
Despite the volatility in commodity prices, broader market reactions have remained relatively contained, with the MSCI World index only declining by 2.8% since the conflict began. However, if high oil prices persist, the macroeconomic impact could lead to more significant drawdowns in equities and other risk assets. The US and China are expected to outperform other regional economies due to their energy positions, while countries like Japan and South Korea face increasing risks as their reserve buffers dwindle.
Conclusion
The closure of the Strait of Hormuz poses a substantial threat to global oil supply and economic stability, particularly for Asian economies heavily reliant on Middle Eastern energy imports. The situation warrants close monitoring as the potential for stagflation looms, and the duration of the disruption remains uncertain.