The View | War-induced interest rate shocks unlikely to upset Asia’s property markets

Even if the Strait of Hormuz reopens sooner than anticipated, the scale of the damage to energy assets in the Persian Gulf means production and exports will take much longer to return to normal than previously assumed.

Rory Johnston, an oil analyst, said the effective closure of the strait had already caused a reduction in global oil supplies of 20 million barrels a day, far exceeding the predictions of 3 million a day at the time of Russia’s invasion of Ukraine in 2022, which proved too pessimistic. Faith Birol, the head of the International Energy Agency, recently said the Iran war was the “greatest global energy security threat in history”.

Bond investors fear the inflationary consequences of the supply shock will force many leading central banks to raise interest rates, dashing expectations of further reductions in borrowing costs. In a sign of the abruptness of the shift in market sentiment, traders are assigning a 50 per cent probability to a US interest rate rise by October, compared with expectations of reductions before the war erupted.

In Asia, which is highly exposed to supply disruptions due to heavy reliance on energy imports from the Gulf, the move towards tighter monetary policy is more advanced. Last week, the Reserve Bank of Australia (RBA) increased interest rates for the second straight month, joining the Bank of Japan in the region’s monetary tightening camp.

On March 18, Citigroup said it expected the Bank of Korea (BOK) to increase borrowing costs by half a percentage point this year because of the more “pronounced impact” of higher oil prices on inflation.