Asian markets surged Wednesday morning as investors welcomed a two-week ceasefire between the U.S. and Iran, even if details of what the temporary truce means for transit through the strategic Strait of Hormuz remain unclear.
As of 2:30am Eastern time, South Korea’s KOSPI is up by 7.1%, while Japan’s Nikkei 225 rose 5.5%. Taiwan’s TAIEX jumped 4.6%. Hong Kong’s Hang Seng Index, back from a long holiday weekend, also gained 3.1%, while Australia’s ASX 200 is up by 2.6%.
Benchmark indices in Vietnam, Indonesia and the Philippines rose by more than 2.0%. (Investors may have also been cheered by indexmaker FTSE’s signal that it will upgrade Vietnam to emerging market status, and won’t downgrade Indonesia to a frontier market). Singapore’s Straits Times Index and Malaysia’s KLCI both rose by less than 1.0%.
Airline stocks, which have been hard hit by fuel shortages, jumped on Wednesday. Australian flag carrier Qantas rose by 10%, while budget airline AirAsia surged by 6.9%. Hong Kong’s Cathay Pacific jumped by 4.7%.
Late on Tuesday, U.S. President Donald Trump announced the start of a two-week Pakistan-brokered ceasefire with Iran. The news came just 90 minutes before Trump’s self-imposed deadline of 8:00pm Eastern, after which he had threatened to start bombing Iranian civilian infrastructure, like power plants and bridges.
After the ceasefire news, oil prices plunged below $100 a barrel, much to the relief of Asia’s oil-importing nations such as China, South Korea, Singapore and the Philippines. Both West Texas Intermediate and Brent crude fell by over 13%.
Is the Strait of Hormuz open?
Any reopening of the Strait of Hormuz, even a partial one, will be welcomed by world governments staring down an energy crisis not seen since the 1970s. The strait, closed since the start of the Iran conflict, is the key shipping route for goods flowing to and from the Middle East.
Much of the oil and gas that travels through the strait is bound for Asia, and is now blocked due to the conflict.
At least 800 ships are trapped in the Gulf due to the closed waterway. Beyond oil and gas, the strait is also a key route for commodities like fertilizer and helium.
Yet both the U.S. and Iran are releasing mixed signals on what the ceasefire entails. Trump said the ceasefire is conditional on the “complete, immediate and safe opening of the Strait of Hormuz.” In contrast, Abbas Aragachi, Iran’s foreign minister, said passage was “possible via coordination with Iran’s armed forces.”
An unnamed regional official later told the Associated Press that the ceasefire deal allows both Iran and Oman, which border the Strait, to charge transit fees. Iranian officials previously suggested it would impose a $2 million fee per ship in negotiations with the U.S.
The few ships that have crossed the Strait in recent weeks have reportedly done so after negotiations with Tehran and payment of fees in Chinese yuan.
How Asian governments are grappling with the crisis
Asian governments have maintained a cautious stance amid mixed messages from the White House, which combined leaks of ongoing negotiations with aggressive social media posts by Trump (including one on Tuesday that warned “an entire civilization will be destroyed”).
On April 7, Singapore announced nearly 1 billion Singapore dollars ($784 million) in relief measures for local households and businesses. The country also announced its intention to increase its fuel reserves, with Home Affairs Minister K. Shanmugam calling the move “costly” but “necessary”.
Malaysia, too, warned citizens to brace for the impact of rising fuel and transport costs, adding that global energy supplies will take time to stabilize due to severe infrastructural damage in the Middle East.
“Higher global fuel prices will lead to increased costs for petrol, diesel and air travel, compounded by rising logistics and insurance expenses,” Malaysian deputy prime minister Fadillah Yusof said on Monday, according to Sarawak news outlet Dayak Daily. “We need to plan ahead so that we can manage whatever challenges that arise.”
Governments across the region have instituted fuel rationing, reopened coal plants, and banned exports of refined fuel products to address shortages. Even if Hormuz reopens, it will take time for energy exporters to rebuild infrastructure damaged in the conflict.
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