APAC’s oil-driven macro hit from the Strait of Hormuz closure

As oil prices surge past USD 100 a barrel, Donald Trump has vowed to reopen the Strait of Hormuz to global shipping traffic — but US officials have warned that a successful outcome could take weeks.

Countries that are net importers of oil not only face the immediate burden of higher global crude prices. They must also grapple with the secondary pressure of currency depreciation.

We’ve charted major Asia-Pacific currencies’ trading versus the USD this month against their net import position for fossil fuels. South Korea and Thailand have seen their import dependence reflected in the sinking baht and won.

Given that oil is priced in USD, the effective cost of energy imports rises even further for these nations, creating a feedback loop of economic stress that amplifies inflation pressures and worsens trade balances. Investors anticipating a drawdown in foreign reserves, weaker growth prospects, fiscal strains, oil-driven inflation and ensuing monetary policy tightening could respond by reducing exposure to these markets. Capital outflows might then place additional downward pressure on local currencies.

Malaysia and Indonesia have seen their currencies fall, but their economies are shielded from the worst of this crisis given their own fossil-fuel production. Malaysia exports oil and liquefied natural gas; Indonesia produces not only oil but coal — which may benefit from a substitution effect should power producers start switching away from natural gas and oil.

Australia, an energy-exporting powerhouse thanks to LNG and coal, has the only appreciating currency in our scatterplot — benefiting from improved terms of the trade.