CONCLUSIONS
Regardless of whether and how quickly Hormuz transit resumes to pre-conflict levels — and as of mid-June there is no indication this will happen smoothly or soon — there will be no return to the pre-closure status quo, especially for Asia.
While the global economy proved more resilient to the initial shocks than many analysts expected, markets and policymakers should take little comfort. Strategic petroleum reserves, commercial stockpiles, alternative export routes, and demand-management measures all softened the initial blow. But stockpiles, inventories, and reserves do not replenish themselves. Many of the global economy’s buffers are worn through. Should the ceasefire falter or Strait transit resume only fitfully and partially — as has been the case in the initial wake of the ceasefire — the global economy is poised for a second blow it is far less equipped to absorb.
Nor should anyone take for granted the role that timing played in blunting some of the most severe effects. When the Strait closed, there was still a degree of slack in several key commodity markets, including oil and helium. China also played an outsized role in balancing the global energy system during the crisis: by cutting refinery runs, drawing selectively on inventories, redirecting supply, suppressing some demand, and importing less, Beijing absorbed part of the lost Hormuz volume and moderated pressure on global markets. The calendar mattered as well: the disruption came just after the peak winter demand season in the Northern Hemisphere, when energy consumption and prices are typically at their highest. Had the closure occurred at a different point in the year — or during a tighter phase of key commodity cycles — the immediate effects could have been considerably more severe.
And, as the preceding chapters show, the global economy’s initial resilience should not distract from the substantial costs borne by key countries — many of which are still working their way through domestic economic and political systems and will be for some time.
In Asia, emerging markets were hit first and hardest. India has thus far proven resilient but remains vulnerable if further disruptions lead to a broader slowdown that would reverberate through the global economy. Advanced economies such as Japan and South Korea entered the crisis with substantial reserves and stronger buffers but would confront difficult fiscal and political trade-offs if disruptions persist. China stands out as the sole exception. While not immune from the pain points, China is set to emerge from the crisis best positioned — with limited exposure and more to gain from the broader economic and geopolitical trends the conflict sparked than any other country.
While not immune from the pain points, China is set to emerge from the crisis best positioned — with limited exposure and more to gain from the broader economic and geopolitical trends the conflict sparked than any other country.
For the Indo-Pacific’s other largest economy — the United States — the full impact of the crisis is only beginning to be felt. The United States was less directly exposed to disruptions in the Strait than many Asian markets, but it remains vulnerable to global commodity price shocks and the inflationary pressures they transmit. Prices are higher — not only at the pump but for food, electricity, and health care. As long as commercial transit through the Strait remains constrained compared to pre-crisis levels, the price effects for U.S. households and businesses will continue to compound. There is also a risk to the U.S. economy’s defining growth story: the AI buildout. Higher costs for energy, materials, and capital could weigh on investment or introduce new bottlenecks in a supply chain that is already stretched to its limits, slowing the expansion of the data center infrastructure underpinning the boom.
And then there are the strategic costs to the United States. Much of the world sees this as a crisis Washington helped to precipitate, raising fresh doubts about the United States’ ability to sustain a strategic focus on the Indo-Pacific. The second-order strategic consequences could include weaker burden-sharing by allies, greater hedging toward Beijing, and setbacks to efforts to de-risk from China — all while these and other benefits accrues to Beijing.
Much of the world sees this as a crisis Washington helped to precipitate, raising fresh doubts about the United States’ ability to sustain a strategic focus on the Indo-Pacific.
For the United States as for the Indo-Pacific’s other major economies, the closure exposed vulnerabilities that were broader, deeper, and more interconnected than many policymakers, investors, and businesses appreciated. Some of the most important consequences will emerge only gradually — in inflation, investment decisions, supply chains, domestic politics, and geopolitical alignments.
The following takeaways will shape how governments and markets think about economic security in Asia and beyond.
Strategic Takeaways
- Inflation is likely to be more persistent than markets currently expect. History offers a cautionary note: the inflationary waves that followed COVID-19 and the 2022 energy crisis both proved far stickier than initial forecasts suggested, persisting long after the original supply disruptions had eased. While the first-round effects are already visible, the greater risk is that higher energy and commodity prices feed into broader inflation over time. A compounding factor is that businesses across sectors have drawn down inventories and strategic reserves during the months of Strait disruption. The coming restocking cycle will generate a fresh wave of demand at precisely the moment supply chains remain fragile, pushing prices higher still. Households will bear the largest burden, as energy and food costs consume a disproportionate share of disposable income.
- What appears as inflation in advanced economies is likely to translate into much more severe humanitarian consequences and food insecurity elsewhere. Fertilizer shortages are already working their way into the 2026 summer harvest, locking in higher food prices in the months to come — a dynamic that threatens to tip vulnerable populations into food insecurity and could strain global food systems in ways that outlast the crisis itself. The least-developed countries — those least able to absorb the shock — will bear some of its heaviest costs.
- The costs of disruption include opportunity costs. Capital that might otherwise have been deployed toward growth, innovation, or technological advancement will instead be redirected toward redundancy, security, supply-chain adaptation, and defense spending. Companies will spend more on inventories, alternative suppliers, and risk management. Governments will devote more resources to strategic reserves and stockpiling — and may expand spending on relevant defense systems, including naval systems, drones, mine countermeasures, and maritime surveillance, and hardened infrastructure, which will create clear winners among defense firms and supplier nations. It will also compete with civilian sectors for scarce electronics, critical metals, skilled labor, manufacturing capacity, and capital, potentially raising costs and slowing investment elsewhere in the economy.
- The economic shock will have political consequences that are only beginning. Some effects could emerge quickly in electoral politics, including in the U.S. midterms, where affordability has already become a central concern and gasoline prices are likely to remain well above pre-war levels through the summer. But if prior shocks are any guide, the story will not end with the current election cycle. The inflationary wave that followed COVID took years to fully register in politics — long after the underlying price pressures began to ease — as voters punished incumbent governments for the slow grind of persistent higher prices and eroding living standards. Many of the second-order effects — including higher food prices driven by fertilizer shortages, delays and cost overruns in electricity and infrastructure projects tied to copper prices, and rising healthcare costs resulting from disruptions to critical inputs — will take months or years to work their way through economies. As a result, the political salience of the crisis is likely to extend well beyond the immediate shock and into future electoral cycles across Asia, the United States, and beyond. By the time voters go to the polls in contests ranging from Indian state elections to the 2028 U.S. presidential election, the effects of the closure may still be shaping political debates.
The inflationary wave that followed COVID took years to fully register in politics — long after the underlying price pressures began to ease — as voters punished incumbent governments for the slow grind of persistent higher prices and eroding living standards.
- The AI buildout faces rising second-order costs — and may amplify them for other sectors. The primary impact of the Hormuz crisis on the AI sector is likely to be in higher upstream costs: for aluminum, copper, and the steel, concrete, and specialized hardware that data center construction depends on, compounded by rising interest rates that increase the cost of debt-funded hyperscaler capital expenditure. The well-cited risk of outright input shortages — especially of helium for semiconductors — is overstated in the near term. Chipmakers have been able to absorb premiums, but their price-setting impact is itself a risk for other sectors.
The well-cited risk of outright input shortages — especially of helium for semiconductors — is overstated in the near term. Chipmakers have been able to absorb premiums, but their price-setting impact is itself a risk for other sectors.
If hyperscalers and chipmakers can secure scarce helium, copper, transformers, and power infrastructure, there will be opportunity costs — if not outright shortages — for other sectors from healthcare to construction to smaller manufacturers. The AI sector may be dodging the headline risks, but its buying power in a constrained market will create scarcity and cost pressures elsewhere that are harder to see and slower to resolve.
- Healthcare faces a slow-moving but significant squeeze. The crisis placed simultaneous pressure on pharmaceuticals, medical supplies, and diagnostic equipment, creating a squeeze on healthcare capacity rather than a single point of failure. Higher energy and transportation costs are raising the price of Chinese inputs used by Indian pharmaceutical manufacturers, while disruptions to naphtha and helium supplies threaten everything from syringes and IV bags to diagnostic imaging. Unlike semiconductor firms that were able to secure helium supplies, some medical providers — especially in lower income countries — could face shortages and price spikes.
- A faster but more expensive — and more geopolitical — energy transition will ensue. Energy security is likely to become one of the defining investment themes of the post-crisis period, accelerating trends already underway — from renewable deployment and LNG diversification to nuclear restarts, strategic reserve-building, and new pipeline and grid infrastructure. In other respects, however, the transition may reverse pre-crisis trends. Coal, for example, could experience a resurgence in some markets as governments prioritize reliable electricity supply and broader electrification goals.
Many countries will pursue an “all of the above” strategy, prioritizing resilience over efficiency. One paradox of the crisis is that it is likely to both accelerate demand for clean energy and disrupt the supply chains needed to build it. For example, the sulfur squeeze, compounded by Chinese export restrictions and Russian supply constraints, is raising costs across critical mineral supply chains. As a result, the same disruption that strengthens the strategic case for renewables may delay many of the projects required to deliver them. These factors also point to a broader reality: the energy transition will become more geopolitical, not less: fossil-fuel geopolitics and clean-energy geopolitics will operate simultaneously.
Energy security is likely to become one of the defining investment themes of the post-crisis period, accelerating trends already underway.
- Emerging markets’ economic momentum is at risk, but the crisis creates new opportunities for those who move fastest. Key sectors of India’s economy, particularly agriculture and pharmaceuticals, are exposed to further pressure if disruptions to the Strait persist or intensify, but New Delhi has adeptly deployed policy tools to weather initial shortages and price shocks — and India could even benefit if investors see new opportunities in its renewables and technology sectors in light of vulnerabilities in the Middle East or Southeast Asia as a result of the Gulf conflict.
Southeast Asia has emerged as one of the world’s most compelling investment destinations: a manufacturing powerhouse and growing tech hub riding the “China Plus One” wave that drove record FDI inflows in 2024. Its rise was predicated on certain assumptions including stable energy costs, improving infrastructure, and reliable supply chains. The Hormuz crisis has exposed where those foundations are most fragile. Malaysia, as a net oil exporter, has a structural cushion most of its neighbors lack. Vietnam, one of the region’s most dynamic manufacturing stories, is structurally exposed by a 26-day petroleum reserve. The Philippines faces the starkest challenge, with near-total import dependence for crude leaving it with little buffer against prolonged disruption. At the same time, accelerating EV and renewables demand could boost the region’s clean energy manufacturers. Countries that can move rapidly to deploy cheap renewable energy will gain a structural cost advantage. The crisis may also redirect technology investment flows: hyperscalers and data center operators that had earmarked capital for Gulf hubs are reassessing their exposure to the region. Although Southeast Asian markets cannot replicate many of the Gulf’s advantages, a push for resilience and diversification could channel a portion of investment toward the region. Malaysia, given its established digital infrastructure and relative political stability, stands to capture a share of any redirected investment.
- The Strait disruptions have second-order consequences for the United States’ strategic and economic security goals. In the short term, the Strait closure has made the world more reliant on U.S. energy exports. In the longer run, it could undermine key elements of Washington’s strategy and cement dependencies Washington wanted to see broken. After a third global shock in six years, firms and governments may increasingly balk at the costs of U.S. technology and investment controls and prioritize supply chain security over strategic alignment, throwing into reverse efforts to derisk from China. Across Asia, even close U.S. partners such as Korea are now reconsidering Russia’s role as a supplier of crude, LNG, refined products, and helium. The crisis has also put a fiscal squeeze on U.S. allies such as Japan at a moment when Washington was asking them to step up with greater defense spending. While countries will not turn away from the United States, the economic fallout from the crisis is costing Washington goodwill across the region. Beyond the reputational damage, the crisis has pulled leadership attention and military assets back to the Middle East and away from Asia — the region that will do most to shape the global economy and determine the balance of power in the 21st century.
In the short term, the Strait closure has made the world more reliant on U.S. energy exports. In the longer run, it could undermine key elements of Washington’s strategy and cement dependencies Washington wanted to see broken.
- China is emerging from the crisis with clear economic and strategic advantages. While China still faces weaker external demand, higher import costs, petrochemical stress, and backlash against overcapacity, the second-order effects of the crisis run in Beijing’s favor and reinforce its narrative that China is the stable global partner of choice. China’s relative insulation from supply and price shocks gives it a further competitive edge and deepens economic dependencies it can leverage for geopolitical advantage. Higher energy prices are accelerating the global push into renewables – the one part of the global energy stack that China dominates. As countries across Asia confront the economic and political fallout from what they largely perceive to be a U.S.-instigated crisis, even some U.S. partners will have incentives to hedge back towards China.
The second-order effects of the crisis run in Beijing’s favor and reinforce its narrative that China is the stable global partner of choice.
- Geography is reasserting itself as the ultimate chokepoint. The crisis is a reminder that the 21st-century global economy, for all its digital infrastructure and financial sophistication, remains hostage to geography in ways that would have been familiar to a 19th-century naval strategist. It has also resurrected a question many assumed the postwar order had settled: who controls the world’s critical sea lanes, and on what terms. Iran’s use of the Strait as an instrument of coercion — conditioning, restricting, and at times halting passage — has shown that freedom of navigation is not a natural condition but a political one, dependent on deterrence and the willingness of major powers to enforce it.
The disruption has sharpened attention across boardrooms and defense ministries to other passages whose stability is similarly contingent. This includes the Strait of Malacca, through which the bulk of Asia’s seaborne trade transits. Malacca is not only a chokepoint for oil and manufactured goods; it is also a corridor for solar components, battery materials, refined critical minerals, electronics, and clean-tech equipment. Ironically, a world that electrifies to reduce oil vulnerability may become more dependent on other chokepoints. The crisis has also intensified focus on the Taiwan Strait, whose strategic, technological, and commercial significance make it perhaps the most consequential chokepoint of all.