Singapore PM Warns Prolonged Strait of Hormuz Closure Could Spark Global Stagflation

Why the Strait of Hormuz Matters to the Global Economy

The Strait of Hormuz is one of the most important energy chokepoints in the world. Around 20 million barrels of oil per day moved through the passage in 2024—about 20% of global petroleum liquids consumption and more than a quarter of global seaborne oil trade .

Because such a large share of global energy flows through this narrow shipping route between Iran and Oman, any sustained disruption immediately threatens global fuel supply and shipping networks.

Asian economies are particularly exposed because many rely heavily on energy imports from Gulf producers transported through the strait .

Rising Global Inflation Risks

Wong warned that the first economic impact would likely appear in energy markets. If oil shipments remain constrained, fuel shortages and higher energy prices could push inflation upward worldwide .

He also noted that the inflation shock would likely spread beyond energy. Higher fuel and shipping costs could affect fertilizer production, agriculture, and supply chains for basic goods, raising the risk of broader price increases in food and other essentials .

Energy Supplies and Oil Demand

A prolonged shutdown would create supply shortages for countries dependent on Gulf energy exports. In the short term, limited supply could drive oil prices sharply higher.

Over time, however, extremely high prices could reduce demand as airlines, freight companies, manufacturers, and consumers cut energy use in response to rising costs and slowing economic activity.

Central Banks Face a Policy Dilemma

If the crisis produces both rising inflation and weakening economic growth, policymakers could face a difficult trade‑off.

Central banks may feel pressure to keep interest rates high to control inflation even as economic activity slows, increasing the risk of recession. This combination—high inflation and weak growth—is the classic definition of stagflation.

Food Prices and Supply Chain Pressure

Wong warned that the disruptions would not stop with oil and gas. Energy shocks often ripple through supply chains because fuel is essential for farming, fertilizer production, transportation, and refrigeration .

Higher input costs could therefore push food prices higher worldwide, intensifying inflation and increasing pressure on households—especially in import‑dependent economies.

Currency and Financial Market Effects

Energy shocks also tend to affect currency markets. Countries that rely heavily on imported fuel may see their trade balances worsen as energy bills rise, which can weaken their currencies.

Meanwhile, energy‑exporting countries and traditional safe‑haven currencies may strengthen as investors seek stability during global uncertainty.

The Risk of a 1970s‑Style Stagflation Shock

Wong warned that if the disruption lasts long enough, the combined effect of higher prices, supply shortages, and slowing economic activity could resemble the stagflation seen during the oil shocks of the 1970s .

He emphasized that the world should prepare for months of disruption and that pressures could intensify before conditions improve . Even after the strait reopens, repairs to ports, mine‑clearing operations, and logistical recovery could delay a return to normal energy flows .

Why the Outcome Is Still Uncertain

Despite the risks, the final economic impact depends on several factors: how long the disruption lasts, whether alternative shipping routes or inventories can offset lost supply, and how governments and central banks respond.

For now, Wong’s warning highlights the scale of the potential shock. Because the Strait of Hormuz carries such a large share of the world’s energy trade, a prolonged closure could ripple across energy markets, inflation, food systems, and financial markets worldwide .