Deutsche Bank: If navigation through the Strait of Hormuz is disrupted, Asia's energy supply will be severely impacted, with Japan and South Korea bearing the brunt!

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Deutsche Bank warns that as the world’s most important energy chokepoint, the Strait of Hormuz carries about 20% of global oil consumption and 20% of liquefied natural gas (LNG) supply, with almost no viable alternative routes available.

After joint US-Israeli military action, the Iranian Navy announced a ban on vessels passing through the Strait of Hormuz. Although Tehran has not issued a formal state statement, credible threats of blockade have already led to declining transit volumes and rapidly rising transportation costs—a trend already emerging in the market.

Among all Asian economies, Japan and South Korea will bear the brunt. Japan relies on imports for 87% of its total energy consumption, and South Korea for 81%, with over 70% of both countries’ crude oil imports coming from the Middle East, most of which must be transported through the Strait of Hormuz. Deutsche Bank believes that high import dependence means the energy security of Japan and Korea is more vulnerable in this crisis, and a prolonged supply shock would pose a significant threat to their economies.

The Asian foreign exchange market has already shown predictably weakening trends, with risk-sensitive currencies such as the Korean Won, Australian Dollar, and Malaysian Ringgit under obvious pressure. Deutsche Bank currently maintains its existing FX strategy portfolio, holding short positions on USD against the Korean Won, Indian Rupee, and Malaysian Ringgit, and regards Malaysia as the biggest beneficiary of rising oil prices in the region.

Strait of Hormuz: An Irreplaceable Global Energy Lifeline

Deutsche Bank points out that historical experience shows credible threats of blockade alone are enough to shrink shipping activity and boost transportation costs, and this effect is already evident in the market—transit shipping volumes are decreasing, and tanker transportation costs are rising.

Deutsche Bank cites US Energy Information Administration (EIA) data to emphasize that about 20% of global oil consumption and 20% of global LNG supply pass through this extremely narrow waterway, with almost no practicable alternative routes available.

This structural feature means that any disruption threat at the Strait of Hormuz will have a profound impact on the global energy supply landscape, not just a regional disturbance.

Asia Bears 80% of the Impact: Highly Concentrated Energy Dependence

Deutsche Bank’s report clearly points out that disruptions in the Strait of Hormuz would inflict an extremely asymmetric blow on Asia.

According to Deutsche Bank’s calculations, about 89% of the crude oil and condensates passing through the strait end up in Asia; about 81% of LNG goes to Asia. Asia’s energy dependence on this route far exceeds any other region.

Within the region, Japan, Korea, and India are the main destinations, which together account for a substantial share of crude oil and LNG transit volumes through the strait. This highly concentrated layout means that if the strait closes, Asia will face a severe energy supply gap, almost impossible to compensate for in the short term through redirected transport.

Deutsche Bank emphasizes that, although some Asian countries have larger absolute import volumes, in terms of vulnerability of energy security, the risks faced by Japan and Korea are more significant because these two countries are highly reliant on imported fossil fuels overall.

Specifically, 87% of Japan’s total energy consumption comes from imports, 81% for Korea, while India’s is only 35%. More crucially, over 70% of Japan and Korea’s crude oil imports come from the Middle East, most of which must pass through the Strait of Hormuz.

As for energy reserves, Korea has about 52 days of gas reserves and 60 to 70 days of oil reserves, which is relatively ample; nevertheless, if disruptions continue, this buffer is still limited. Deutsche Bank believes a prolonged interruption would have a substantial impact on the energy security and economic stability of Japan and Korea.

Macroeconomic Impact: Regional Differentiation Effects of Rising Oil Prices

Deutsche Bank says that with a prolonged closure of the Strait of Hormuz, oil prices will keep facing upward pressure. Based on a scenario analysis of oil prices rising by 10%, a clear differentiation in impact will emerge among Asian economies.

In terms of current account, Thailand, the Philippines, and Korea face the most significant negative impact, closely linked to their heavy reliance on oil imports.

In terms of inflation transmission, sensitivity will be most pronounced for Korea, Singapore, the Philippines, and Thailand—mainly because these countries adopt market-linked fuel pricing mechanisms, allowing international oil price fluctuations to transmit more quickly and directly to end-consumer prices. Deutsche Bank also notes that some countries can alleviate inflationary pressure through tax reductions, for example Korea and Thailand.

Forex Strategy: Ringgit Benefits, Won Faces Pressure but Holds Support

Deutsche Bank notes that after market opens, Asian FX has seen a predictable weakening, with risk-sensitive currencies, the Korean Won, Australian Dollar, and Malaysian Ringgit, under the greatest pressure.

As for specific positions, Deutsche Bank currently maintains shorts on USD against the Korean Won, Indian Rupee, and Malaysian Ringgit. Regarding the Won, Deutsche Bank believes seasonal factors (fuel demand usually declines after Q2), robust electronics export cycle, and a not-overly long market positioning all provide key support; however, Deutsche Bank also concedes that if overall risk sentiment deteriorates further, it will consider exiting this position opportunistically.

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