Strait of Hormuz's closure will see oil prices rise, says economist

Free Malaysia Today

26-06-2025

The Strait of Hormuz in Iran is a key gateway for the global supply of oil. (EPA Images pic)
PETALING JAYA : The possible closure of the Strait of Hormuz by Iran will cause oil prices to rise in the short-term, though it is too soon to tell if it will have a lasting economic impact, says an economist.
Center for Market Education CEO Carmelo Ferlito said the situation in the Middle East, with a ceasefire between Iran and Israel now in force, remained very fluid.
'There is always a delay between the increase or decrease in oil price and the reflection on other prices. And the delay and intensity – if the closure happens – depends on how long the crisis will persist. At the moment, I don't know if it will persist.
'To draw conclusions on eventual energy prices and other prices is premature. So at this moment, we can only say that there will be an increase in oil prices in the short run,' he told FMT.
Ferlito said inflation was not expected to be among immediate concerns from the potential closure of the strait.
'Inflation is a general and persistent increase in prices that arise when the supply of money grows faster than the economy's output.
'And if the government and monetary authorities refrain from increasing the supply of money, we will only have an adjustment of relative prices, not inflation,' he said.
On Sunday, Iran's parliament approved the closure of the Strait of Hormuz, a key gateway for the global supply of oil, after the US struck three of Tehran's nuclear facilities.
Iran's Supreme National Security Council will, however, make the final decision on the matter.
The strait, which lies between Iran and Oman, links the Persian Gulf and the Arabian Sea. Its closure is expected to force companies to take longer, less efficient routes to distribute oil, such as pipelines or alternative shipping routes.
This would lead to increased freight costs, insurance premiums, and delivery times, causing price hikes. Countries starting to hoard oil is another risk factor, potentially creating artificial scarcity which would push prices even higher.
The Treasury has raised the prices of RON97 nationwide and diesel in West Malaysia by 14 sen over the past two weeks, citing the rise in global oil prices.
Yeah Kim Leng of Sunway University said Malaysia would be significantly affected by the closure of the strait, as about 15% to 20% of Malaysia's oil supply passes through it.
He said Malaysia, as a net oil exporter, sells the more expensive sweet crude oil to other nations and imports sour crude oil for its refineries here.
As Malaysia's oil exports mostly go to East Asian countries, they are not expected to be directly affected by the strait's closure.
However, imports largely come from countries like Saudi Arabia, Iraq and Iran, while the closure of the strait would disrupt the operations of refineries in Malaysia.