Iran War Drains Asian FX Reserves: Strait of Hormuz Oil Flows Down 30%, Central Banks Defend Currencies

The Iran-Israel conflict, now in its eleventh week, has created a seismic energy shock that is reshaping global commodity flows and forcing Asian central banks into a defensive posture on currency defense. According to the Energy Information Administration, crude oil and fuel flows through the Strait of Hormuz fell by nearly 6 million barrels per day in Q1 2026, representing approximately 30% of normal transit volumes. This disruption has forced refiners, particularly in India, to source crude from alternative suppliers at substantial premiums, feeding directly into local inflationThe rate at which prices rise across an economy. metrics and forcing monetary authorities to spend hard currency reserves to stabilize exchange rates.

India, the world's largest importer of petroleum and a major buyer of Iranian crude under existing sanctions waivers, has asked the United States to extend its Russian oil waiver through the durationBond price sensitivity to interest rate changes. of the conflict. The central bank has deployed roughly $50-75 billion in reserve drawdowns to defend the rupee against oil-driven depreciation pressure. The Philippines and South Korea have similarly burned through reserves as energy costs spiked. This reserve depletion creates a second-order stability risk; if central banks exhaust reserves faster than energy markets normalize, forced currency devaluation and imported inflationThe rate at which prices rise across an economy. becomes unavoidable, triggering capital flight and broader emerging market volatility.

Energy traders and geopolitical analysts perceive the Iran war not as a transient event but as a structural shift in energy market geography. Japanese refiner Eneos has agreed to purchase Chevron's Asian Pacific refining and retail assets for $2.17 billion, betting on prolonged regional energy scarcity and elevated margins. Qantas and Air New Zealand have reported substantial losses from spiking jet-fuel costs, with Air New Zealand forecasting a full-year loss as it cuts capacity and raises ticket prices. The pass-through of energy costs into consumer prices creates inflationThe rate at which prices rise across an economy. persistence that central banks, especially those with depleting reserves, struggle to contain.

Optimistic scenarios assume Iran conflict resolution within weeks or months, leading to rapid normalization of Hormuz transits and a sharp decline in crude prices from recent highs near $85. However, structural tensions between Iran and Israel, regional proxy wars, and the potential for further infrastructure damage extend the timeline. If energy prices remain elevated through Q2 2026, Asian reserve depletion accelerates, forcing policy rate hikes by central banks already struggling with negative real rates.