Commentary: The fragile reopening of Hormuz is no return to normal for Asia
A return to pre-war normalcy in the Strait of Hormuz is likely to be slow. This holds implications for Asia, says Coface chief APAC economist Bernard Aw.
by Bernard Aw · CNA · JoinRead a summary of this article on FAST.
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SINGAPORE: Vessels have begun moving through the Strait of Hormuz after the United States and Iran signed a memorandum of understanding (MOU) last month to pause their conflict and reopen one of the world’s most critical shipping lanes.
This partial resumption in traffic has brought relief to global energy markets, with oil prices retreating to levels last seen before the conflict.
Yet, reopening a waterway is far easier than restoring confidence. For one, the interim agreement still leaves important questions unresolved, including how the Strait of Hormuz will be governed beyond the initial 60-day period. Reports of renewed hostilities following an Iranian attack on a cargo ship also underscore how quickly the situation can deteriorate.
A return to pre-war normalcy in the Strait of Hormuz - and more broadly, global energy markets - is likely to be slow. For Asia, there will be implications.
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A FRAGILE REOPENING
Even under the terms of the MOU, the reopening of the strait is not instantaneous. Mine clearance operations alone will take time, and ensuring navigational safety requires coordinated military and civilian efforts.
The more binding constraint is logistical, with supply chains already disrupted for months. About 1,200 vessels carrying an estimated US$125 billion in goods are still stranded, creating a backlog that will take weeks, if not months, to unwind.
Shipping schedules, port congestion and insurance arrangements cannot revert overnight. Insurers are also likely to remain cautious, maintaining higher premiums for vessels transiting the region, further suppressing traffic volumes.
More critically, the ceasefire itself remains tenuous.
A brief renewal of strikes between Iran and the US after the interim agreement underscores the fragility of the nascent shipping recovery in the Persian Gulf. This matters because markets respond to expected risks, not just current conditions. Even a low probability of renewed disruption can keep insurance costs elevated and discourage a full resumption of shipping activity.
Besides, the MOU is only an interim arrangement. Key issues, ranging from sanctions to Iran’s nuclear programme, have been left to future negotiations. There also remains the risk that Iran could seek to impose transit tolls or other restrictions on shipping through the Strait of Hormuz, adding to costs and uncertainty for global trade and energy markets. All of which create a situation where businesses are making decisions without clarity on the longer-term geopolitical outlook.
As a result, the strait may reopen in a physical sense but remain constrained by logistical bottlenecks, geopolitical uncertainty and evolving risk perceptions. Even if shipping volumes recover, the system will operate under expectations of higher risk, making shipping more expensive and less efficient than before.
ASIA’S WAKE-UP CALL
The Hormuz crisis has been particularly significant for Asia given its heavy dependence on energy imports from the Gulf, much of which transits through the strait.
The disruption triggered immediate responses. Governments monitored or drew on strategic reserves, while refiners sought alternative supplies. In some cases, demand-side measures were introduced to conserve fuel. India, for example, managed to stabilise imports by pivoting to Russian crude and other sources, illustrating both flexibility and its trade-offs.
However, diversification is neither seamless nor costless. Alternative supplies often come with longer shipping times, higher freight costs and additional geopolitical considerations.
The crisis also renewed interest in alternative routes for energy exports from the Middle East to Asia. In practice, however, these options offer only partial relief.
Saudi Arabia’s East-West pipeline and the UAE’s Fujairah corridor allow oil to bypass the Strait of Hormuz and reach the Red Sea or the Gulf of Oman. But their combined capacity falls short of the roughly 20 million barrels per day that typically transit Hormuz. In addition, oil shipped from the Red Sea or Fujairah ports must still travel long distances to Asia, often through other congested sea lanes. In effect, the chokepoint is not removed, just shifted.
More fundamentally, these alternative routes remain tied to Middle East’s energy production system, with similar geopolitical risks such as potential disruptions to infrastructure and regional escalation. Therefore, they do not significantly diversify Asia’s supply base.
Efforts to develop more ambitious overland routes, such as the long-delayed Basra-Aqaba pipeline project by Iraq and Jordan, face additional constraints. Pipelines through Iraq or Jordan, or broader regional networks, are limited by political instability, security risks and competing geopolitical interests. They may also create new chokepoints, giving transit countries greater influence over energy flows.
The conclusion is straightforward: Alternatives can help mitigate disruptions, but they cannot replace the Strait of Hormuz as the primary route for Middle East-to-Asia energy trade as they tend to be less efficient, more costly and more complex to operate.
CUSHIONING THE IMPACT
If replacing Hormuz is not feasible, policy must shift towards improving resilience.
For Asian economies, this involves diversifying energy suppliers beyond the Gulf, expanding strategic reserves and investing in infrastructure that improves supply flexibility. Indonesia’s recent proposal to develop an ASEAN oil storage hub to boost regional reserves is one example of how regional initiatives can strengthen collective resilience.
Over time, accelerating the transition towards renewable energy and other non-hydrocarbon sources will also be important in reducing reliance on vulnerable maritime routes.
This will, in turn, help to cushion the spillover impact on businesses and consumers who have been on the receiving end of price increases. In Singapore, households will face record-high electricity and gas tariffs for the third quarter of 2026. The strait may have reopened, but until the ceasefire proves durable, Asia should brace for continued pain.
Bernard Aw is Chief Economist for Asia Pacific at Coface.
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