Advisory firm Oxford Economics expects the Strait of Hormuz to remain effectively closed until the end of April, with traffic recovering to around 50 per cent of normal levels in May and June before gradually returning to full capacity – but only if a ceasefire announced last week holds.

“Even if a truce is maintained, it will take time for energy production and shipping traffic to return to normal levels,” said Ben May, director of global macro research at Oxford Economics, adding that the firm had cut its world economic growth forecast to 2.4 per cent from 3 per cent at the start of the year.

Oxford Economics sees world consumer price index inflation peaking at 4.4 per cent in the second quarter of the year, driven by higher prices for oil, gas, fertiliser and agricultural commodities.

Janiv Shah, vice-president of oil commodity markets at Rystad Energy, said Asian nations shopping for alternative crude would likely be forced to turn to “Atlantic Basin” oil producers such as the US, Canada and Latin America.

“However, switching crude types is not seamless and could lead to imbalances in fuel output, creating additional pressure on product supply,” he said.

Some buyers might have no choice but to absorb higher costs, while others “could be priced out of the market altogether, forcing a reduction in crude and product demand – effectively contributing to demand destruction”, Shah warned.

That uncertainty may also cause markets to start repricing Gulf oil based on whether it is physically deliverable, according to Priya Walia, a fellow Rystad vice-president of oil commodity markets.

“That means even cargoes that are not directly covered by US action can face delays, risk premiums from shipowners, tighter insurance terms and higher freight costs,” she said.

The economic pain will not be evenly distributed. Energy exporters such as Indonesia, Malaysia and Brunei may enjoy a short-term terms-of-trade boost from elevated prices.

For the region’s most vulnerable economies, the outlook is especially bleak.

Stagflation threat

Lim said the knock-on effects of the Iran crisis on energy prices had not yet been acute enough to trigger serious demand destruction, but warned that a further month or two of disruption in the Strait of Hormuz raised “the spectre of stagflation”.

Stagflation – the toxic combination of slow growth, high unemployment and inflation – is notoriously difficult to treat.

It would confront Asian central banks with an impossible choice: raise interest rates to stamp out inflation and risk tipping their economies into recession, or hold back and allow price pressures to become entrenched.

“This will affect almost all Asian economies,” Lim said. “Energy needs will raise costs all along the value network.”

Oxford Economics forecasts that Brent will average around US$113 per barrel in the second quarter of the year before easing to just under US$80 by year-end if the strait reopens by the end of this month.

ANZ was less optimistic, forecasting Brent at US$88 per barrel by year’s end.