The possible closure Strait of Hormuz, one of the most important trade routes for crude shipments, is seen to weigh on Asia-Pacific’s growth outlook this year.

Located between Oman and Iran, the Strait of Hormuz is considered as the world’s most important oil chokepoint as 20 percent of daily global oil consumption passes through this critical waterway.

Analysts said some of the region’s biggest economies, including China, India, Japan and South Korea, rely on oil and gas sourced from the Gulf and are vulnerable to oil supply disruptions that can cause inflationary pressures.

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As tensions in the Middle East escalate following the United States' direct airstrikes on Iran’s nuclear sites, Iran’s parliament voted on June 22 to authorize the potential closure of Strait of Hormuz.

The news sent jitters across the global oil market with the Brent crude trading at over $77 per barrel on June 23, its highest level since January.

South Korean acting Finance Minister Lee Hyoung-il, citing growing uncertainty after the US military involvement in Israel’s military operation against Iran, has warned of heightened volatility in global financial and energy markets amid the escalating tensions in the Middle East, according to the official Yonhap news agency.

Lee said the government must be on high alert and closely monitor international energy prices and supply-demand dynamics.

At a Seoul meeting to monitor monthly exports, Moon Shin-hak, first vice-industry minister, said as the Middle East situation enters a new phase due to the US airstrike on Iran's nuclear facilities, “there are concerns about the impact on our exports and imports."

Asian bourses were also hit, with Japan’s benchmark Nikkei 225 declining 0.13 percent, while South Korea’s Kospi index closed 0.24 percent lower. India’s benchmark Nifty 50 dropped 0.61 percent.

“Higher global crude oil prices could lead to some pick up in inflation and thereby slow down the world GDP growth,” said Michael Ricafort, chief economist of the Manila-based Rizal Commercial Banking Corporation.

This is a “big Asia problem”, according to Alicia Garcia-Herrero, chief economist for Asia-Pacific at the French investment bank Natixis.

Garcia-Herrero said Asia is “particularly vulnerable” because over 80 percent of its oil and gas imports are transported through the Strait of Hormuz. She said the region’s heavy reliance on Gulf oil and gas, coupled with limited alternative supply routes, makes it highly exposed to disruptions.

“Closing the Strait of Hormuz is possible with the existing military capability of Iran, and whether they will take this highly disruptive step is a judgment call of the leaders,” said Henry Chan, distinguished visiting fellow at the Cambodia Center for Regional Studies.

“If they perceived that the US and Israel would not stop until there is a regime change, then they might push the situation to the edge,” Chan told China Daily.

Lakhvinder Singh, director of peace and security studies at The Asia Institute, a think tank in South Korea said, “We are entering uncharted territory — something like this has never happened in recent memory.”

Singh forecast that global oil prices could surge past $150 to $200 per barrel if and when the Strait of Hormuz was closed. Apart from higher fuel costs that would spike inflation across Asia, he said oil supply disruption “would almost certainly result in serious power shortage in most of East and South Asia”.

“If this occurs during summer months – when energy demand is at its peak – it could cause havoc in the economic and social stability of these countries,” Singh said.

The impact of the oil and gas supply disruption, however, is seen as uneven across Asian economies.

Yeah Kim Leng, professor of economics at Sunway University in Kuala Lumpur, noted that energy exporters like Brunei, Indonesia, Malaysia and Vietnam may be able to mitigate the impact of oil and oil and gas supply disruptions as these countries can rely on their domestic supply.

But Yeah said most countries will face higher oil prices and consequently rising inflationary pressures “given the pervasive energy inputs across all economic sectors, particularly transport and electricity production”.

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Wan Suhaimie Wan Mohd Saidie, head of economic research at Malaysia's Kenanga Investment Bank, cited Bangladesh and Pakistan as two countries that have already experienced “a triple hit: growth slowdown, fiscal blowout (and) inflation spike” owing to high import dependency, low reserves and weak fiscal positions.

Singh said bigger economies have already taken some steps to protect their long-term interests. India has been diversifying its import sources, increasing its investment in Strategic Petroleum Reserves, and deepening its ties with the UAE and Saudi Arabia. Japan and South Korea have been maintaining large oil stockpiles and investing in renewable and nuclear energy to reduce hydrocarbon dependence.

“So, the larger economies of the region are somewhat prepared. The core question, however, is about the smaller economies: how will they survive this ordeal?,” Singh said.

Contact the writers at prime@chinadailyapac.com