BAKU, Azerbaijan, June 23. Asian economies may face rising inflationary pressure and external account stress as crude oil prices climb in response to heightened geopolitical tensions in the Middle East, particularly between Israel and Iran, Trend reports citing a new analysis by JP Morgan.
Crude prices have jumped more than 15% over the past two weeks—from $65 to $75 per barrel—as markets react to the growing risk of conflict escalation. “Markets are now discounting a near 17% probability of Iran closing the Strait of Hormuz,” JP Morgan’s commodities research team wrote. “Given the strait’s strategic role in global energy flows, any disruption could trigger a significant and sustained oil price shock.”
The Strait of Hormuz is a key transit point for 30% of global seaborne oil and 20% of global LNG, much of which is consumed by energy-dependent Asian economies such as India, China, Japan, South Korea, and the ASEAN region.
“The geopolitical risk premium is back,” the analysts said. “But despite current tensions, we maintain our base-case assumption that Brent crude will drift lower in 2025 and 2026, to $66 and $58 per barrel respectively.”
However, JP Morgan warns that in a worst-case scenario involving a full blockade of Hormuz and broader regional conflict, oil prices could surge to $120–130 per barrel. This could pose substantial macroeconomic challenges for Asia.
“Such a scenario would have real consequences for energy-importing economies,” the report noted. “The inflationary pass-through, however, is not uniform across the region.”
According to JP Morgan, a sustained $10/bbl rise in Brent crude could add 0.1–0.5 percentage points to inflation, depending on the country. On average, the direct CPI impact is estimated at 0.2 percentage points.
“Countries like the Philippines and Thailand exhibit more efficient pass-through to pump prices,” analysts explained. “This means any rise in global oil prices translates more quickly and visibly into local inflation.”
In contrast, India, Indonesia, and Malaysia are expected to see limited immediate effects, due to fuel subsidy mechanisms and the ability of domestic refiners to absorb costs.
“There’s a certain degree of insulation built into these systems,” the team wrote, “and it has held up even during sharp oil price spikes, such as in the first half of 2022.”
The report also notes that, despite rising oil prices, monetary policy in most of Asia remains dovish, driven by weak growth and manageable inflation.
“We do not believe the recent $10 oil price increase will meaningfully derail the rate cut cycle in Asia,” the team said. “Inflation is still expected to remain within or below central bank target ranges.”
Yet JP Morgan flags four economies—Korea, Malaysia, Indonesia, and Singapore—as more vulnerable. If Brent crude trades in the $75–90 per barrel range for a sustained period, inflation could breach targets, potentially limiting central bank flexibility.
“For the rest of the region—India, China, the Philippines, Thailand, Taiwan, and Hong Kong—the inflation ‘pain threshold’ lies above $100 per barrel,” the report stated.
Higher oil prices are also expected to pressure current account balances in net energy-importing countries. However, JP Morgan sees limited currency fallout, for now.
“The impact on foreign exchange markets is being moderated by the current weakness of the U.S. dollar,” analysts noted.
Among the most vulnerable, Indonesia stands out due to weaker FX reserve buffers.
“That said, Bank Indonesia can still draw on its onshore FX liquidity stock to stabilize the rupiah, using instruments such as FX swaps,” JP Morgan concluded.
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