MUFG analysts Lin Li, Michael Wan, Lloyd Chan, and Khang Sek Lee have highlighted that Asian currencies and rates are particularly vulnerable due to the ongoing Iran conflict, which threatens oil supply routes through the Strait of Hormuz [1]. The analysts emphasize that Asia is heavily dependent on Middle Eastern energy imports, with 90% of oil passing through the Strait destined for the region [1]. Specifically, Asia imports approximately 60% of its crude oil, 22% of its refined petroleum, 20% of its natural gas, and over 40% of other gases such as LPG from the Middle East [1].
The report warns that the potential for energy shortages and supply chain disruptions could exacerbate risks to regional growth and inflation, making Asia one of the most negatively impacted regions from any disruptions in the Strait of Hormuz [1]. Markets are closely monitoring developments in the Iran conflict, as the spillover effects on oil prices are expected to have direct and indirect consequences for Asian FX and rates [1].
Looking ahead, MUFG analysts note that central banks in both G10 and Asian economies will be focused next week on addressing the inflationary implications of the recent energy shock, even as domestic growth momentum remains uneven across the region [1].
CONCLUSION
The Iran conflict has heightened risks for Asian currencies and rates due to the region's heavy reliance on Middle Eastern energy imports. Potential supply disruptions could worsen growth and inflation outlooks, prompting central banks to prioritize inflationary concerns in the near term. Market sentiment remains negative, with high impact expected for Asian FX and rates.