MUFG analysts Lin Li, Michael Wan, Lloyd Chan and Khang Sek Lee highlight that Asian currencies and rates are vulnerable as the Iran conflict threatens Oil supply via the Strait of Hormuz. They stress Asia’s heavy dependence on Middle East energy imports and warn that potential energy shortages and supply chain disruptions could worsen regional growth and inflation risks.

Asian FX exposed to energy shock

"Markets remain focused on developments in the Iran conflict and the spillover impact to oil prices and to Asian FX and rates."

"Overall, Asia stands out as one of the most negatively impacted regions from disruptions from the Strait of Hormuz, with 90% of the oil through the Strait going to our region."

"Meanwhile, Asia imports close to 60% of its crude oil, 22% of its refined petroleum, 20% of its natural gas, and more than 40% of other gases such as LPG from the Middle East."

"Overall, it is not just about oil prices, but about potential energy shortages and possible indirect spillover impact from supply chain disruptions which raises the left tail risks for Asia’s growth and inflation moving forward from this crisis."

"Looking forward, next week is dominated by G10 and Asia central banks alike grappling with the inflationary implications of the recent energy shock, even as domestic growth momentum remains uneven."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)