S&P Global Ratings stated on Thursday that the reopening of the Strait of Hormuz would reduce tail risk for the Asia-Pacific region, but normalizing supply will be uneven and expensive.
US-Iran Memorandum of Understanding
On June 17, the United States and Iran agreed to a memorandum of understanding that includes a commitment to finalize an agreement within 60 days. The MoU also addresses the reopening of the Strait of Hormuz and the passage of commercial ships without charges.
According to S&P, the US-Iran MoU is constructive, but unresolved hard issues remain, including Iran's nuclear program, sanctions relief, regional security, and Israel's security concerns.
Challenges to Supply Normalization
“Shipping, insurance, port, and operational constraints could also delay a return to pre-conflict flows,” S&P said in its report titled ‘Hormuz reopens, fragility remains’.
S&P maintains its Brent crude price assumption at USD 110 per barrel on average for the rest of 2026, before lowering it to USD 80/bbl in 2027 and USD 65/bbl from 2028.
Impact on Asia-Pacific
“A Hormuz reopening reduces immediate tail risk, but Asia-Pacific still faces slower, costlier, and more fragmented operating conditions,” said Eunice Tan, head of Asia-Pacific credit research at S&P Global Ratings.
Brent crude prices have retreated to below USD 80, and the liquefied natural gas Japan Korea Marker (LNG JKM) is near USD 15 per million British thermal units (MMBtu) after the MoU. S&P noted that while these developments have eased the headline shock, they do not mean physical markets have healed.
Sectoral Exposure and Second-Order Risks
Slow resumption of flows could keep energy, freight, and input-cost pressure elevated across petrochemicals, agriculture, transportation, and logistics. The most exposed sectors are energy, downstream sectors, and emerging markets with thin external and fiscal buffers, S&P said.
The Strait of Hormuz also carries refined fuels, naphtha, fertilizers, and industrial feedstocks, so slower flows can have effects beyond energy. S&P highlighted that South Asia is especially exposed to second-order risks from the West Asia conflict.
Fertilizer and Food Security Concerns
India is the world’s largest urea importer and relies heavily on Gulf suppliers, while Bangladesh and other countries depend on imported fertilizers and gas-linked nitrogen production.
“Alternative supply from North Africa, Russia, China, or higher-cost Europe could help but would be slower and costlier. If fertiliser tightness overlaps with weather stress, it could rapidly affect crop yields, food prices, household purchasing power, and subsidy burdens,” S&P said.
Central Bank Dilemma
“Central banks face a tough trade-off: Tightening policy could help contain inflation and currency depreciation but would weigh on growth; whereas staying put could leave currencies and capital flows more exposed,” Tan said.
