Ceasefire or not, Asia can’t go back to business as usual

Despite US President Donald Trump’s sudden ceasefire announcement with Iran, the Middle East conflict has already spilled into a crisis with far-reaching global economic consequences. Singapore’s Foreign Minister Vivian Balakrishnan has described the potential blockade of the Strait of Hormuz as an “Asian crisis”. This is not alarmist rhetoric; it underscores a fundamental reality: when conflict erupts in the Middle East, the first and most pronounced economic repercussions often appear in Asia.

Asia is particularly exposed due to its high dependence on Middle Eastern energy and critical transport corridors. The Strait of Hormuz handles roughly one-fifth of global oil shipments, with a large proportion directed to Asian markets. Economies such as Japan, South Korea, China and India rely heavily on this corridor. Even a temporary disruption could translate rapidly into price volatility and elevated risk premiums, affecting both industries and households.

Beyond energy dependence, Asia’s structural position in the global economy amplifies its vulnerability. Over recent decades, the region has become the world’s manufacturing hub and growth engine. Today, about half of global manufacturing output is concentrated in Asia. China’s comprehensive industrial ecosystem, Japan and South Korea’s advanced manufacturing, and Southeast Asia’s production networks together form the core of global supply chains.

Manufacturing’s energy-intensive nature makes it highly sensitive to oil and gas prices. The chemical sector, for instance, relies on petroleum both as energy and raw material; any price spike quickly cascades through the industrial system. At the same time, Asia is a key agricultural region, with heavy reliance on fertilisers whose production depends on natural gas and oil. Energy shocks, therefore, affect industrial costs and can ripple into food prices, potentially impacting social stability.

Asia is not simply “affected” by external shocks; it occupies a structurally fragile position. Its dependence on external energy, combined with deep integration into global production, makes it highly susceptible to external shocks becoming internal crises.

The current conflict has also shifted policy perspectives. Energy is no longer treated purely as a market issue; it is now a national security concern. Singapore has established a cross-agency crisis response mechanism focusing on energy supply, shipping stability and price control. Japan and South Korea have reinforced energy security assessments and emergency coordination mechanisms. India has deployed special task forces to manage energy and inflation pressures, while several ASEAN nations rely on subsidies and targeted interventions to stabilise domestic markets.

These measures highlight a broader transition in Asia — from reactive market responses to proactive security-focused strategies. Energy, shipping routes and supply chains are no longer merely economic variables; they are strategic assets. The longstanding “efficiency-first” logic of globalisation is giving way to a “security-first” paradigm.

In this context, risk premiums are increasingly shaping economic decisions, replacing simple cost considerations. Energy prices are no longer determined solely by supply and demand; they are anchored to geopolitical and security expectations. This shift means that external shocks can quickly translate into systemic regional pressures through pricing, financial markets and expectations.

Faced with this new reality, Asia must decide whether to continue passively absorbing shocks or to take the initiative in shaping rules and frameworks.

The region is not without existing cooperation mechanisms. From RCEP to ASEAN+3, from the Chiang Mai Initiative to regional infrastructure frameworks, Asia has established institutional foundations. Yet these frameworks were built during an efficiency-driven phase of globalisation; their main purpose was to liberalise trade and investment, not to address security-related shocks.

The challenge now is to leverage these mechanisms for a new, economically secure regional integration — a shift from a “free trade zone” to a “shock-resilient community.”

This transformation can proceed on four fronts. First, energy: diversify supply, coordinate strategic reserves, and expand renewable energy cooperation to gradually build a regional energy security network. Second, industrial chains: move beyond mere division of labour toward embedded collaboration, enhancing supply stability within the region. Third, finance: strengthen local currency settlement systems and regional liquidity support mechanisms to reduce dependency on a single currency. Fourth, infrastructure: accelerate connectivity and build resilient regional circulation systems.

Each economy can contribute according to its strengths. China, with its complete industrial system and scale, can anchor supply chain stability. Japan and South Korea bring technological and capital advantages. India contributes a large domestic market and manufacturing potential. ASEAN serves as a key link connecting regional production networks. Singapore can play a hub role in finance, settlement, and risk management.

Notably, Singapore’s Prime Minister Lawrence Wong, at the Boao Forum, called on China to play a larger regional role. This reflects both the practical need for stability and the expectation that China act as a “systemic stabiliser”.

China’s role is indeed evolving. Historically, its contribution relied on scale and market capacity, offering demand and stability to the region. Today, depending solely on this “passive stabiliser” function is insufficient to manage systemic shocks. A forward-looking strategy is to move from being a stabiliser to a mechanism builder.

A concrete approach is the creation of a “China+N” industrial chain stabilisation mechanism. The goal is not to assert dominance, but to institutionalise industrial chain stability as a regional public good. This involves strategic coordination in key industries, co-investment in infrastructure with ASEAN and other partners, technology sharing, and risk-sharing arrangements to strengthen overall regional resilience. Embedded collaboration of this kind reduces reliance on single-point stability and creates a networked, shock-resistant supply chain, mitigating the impact of geopolitical conflicts.

Regional integration, however, does not occur in isolation. Asia remains geopolitically complex: China-Japan and China-India relations, as well as South China Sea disputes, may constrain cooperation, while the US presence adds additional variables. The pragmatic path is not to avoid differences but to advance collaboration despite them. History shows that crises often catalyse regional cooperation. The Asian financial crisis, the global financial crisis, and the Covid-19 pandemic all prompted deeper integration of regional mechanisms.

A practical strategy today is to begin with functional areas — energy security, supply chain stability and infrastructure — where sensitivities are lower. Tangible benefits in these areas can build trust gradually. Institutionalised arrangements that enhance policy transparency and expectations are critical for enabling long-term planning in an uncertain environment.

The trajectory from the Middle East conflict to an Asian crisis highlights a key feature of the contemporary global economy: geopolitical shocks are amplified and internalised through structural dependencies. In this process, Asia is both the most directly affected region and potentially the most dynamic arena for institutional innovation.

Related: What does the Iran crisis mean for the global economy? | Hormuz crisis: Should China do more to secure global chokepoints?