Markets around the world predictably welcomed the US-Iran peace deal.
Oil prices fell sharply, stocks rose and investors are already counting on the inflationary dividend that could follow if the Strait of Hormuz is fully reopened and energy supplies return to normal.
But the consensus view, I believe, still underestimates the importance of what might unfold. If the deal stands – and this remains an essential caveat, of course – the main economic beneficiary will not be Iran, the US or Europe.
It will be Asia, and not just because the region will benefit the most from cheaper oil, although it will.
About 85% to 90% of crude oil moving through the Strait of Hormuz eventually ends up in Asian markets. No region is more exposed to the smooth flow of energy, goods and capital through the Gulf.
The deal has the potential to ease multiple economic pressures simultaneously across the region.
Approximately one-fifth of the world’s oil consumption passes through the Strait of Hormuz, along with a significant portion of the global trade in liquefied natural gas. Asian economies, like almost all others, have been forced to absorb the consequences of disruptions in this critical shipping corridor.
Earlier this month, reports indicated that rising imports of US crude into Asia were nowhere near enough to offset the loss of Gulf supplies during the crisis. Asian LNG markets also faced significant disruption as energy flows tightened.
Therefore, the reopening of Hormuz represents more than the return of oil shipments. It represents the restoration of a critical artery for the world’s most energy-dependent growth region.
India perhaps illustrates the point most clearly. As the world’s third-largest oil importer, sourcing around 85% of its crude requirements from abroad, India is uniquely positioned to benefit from lower energy costs.
Any sustained decline in oil prices eases inflationary pressure, strengthens the current account, supports the rupee and improves the government’s fiscal position.
Few major economies enjoy such a direct transmission mechanism from lower oil prices to stronger economic growth.
Savvy investors typically look for transformative policy announcements or breakthrough reforms. India can get a significant economic boost without implementing either.
These benefits will extend beyond India.
Japan imports more than 90% of its oil needs, while South Korea gets most of its crude oil from the Middle East. Lower oil and LNG costs improve industrial competitiveness, support corporate margins and ease pressure on consumers.
China may be an even more important beneficiary than markets currently appreciate.
The world’s largest importer of crude oil, bringing in roughly 11 million barrels a day, has spent years grappling with slowing growth, weak domestic demand and pressure on industrial profitability. A sustained reduction in energy costs would provide significant support across manufacturing supply chains.
Equally important, a more stable Gulf reduces uncertainty around one of China’s most important trade and energy corridors. Predictability may be almost as valuable as cheaper oil to Beijing.
Southeast Asia also stands to gain. Vietnam, Thailand, the Philippines and Indonesia all benefit from lower import costs and reduced inflationary pressure. A less volatile energy environment helps governments, consumers and businesses.
It also increases the region’s attractiveness as multinational companies continue to diversify manufacturing operations across Asia.
However, focusing exclusively on oil risks missing the bigger story. The most important consequence of a durable agreement may be its effect on regional monetary policy.
During the Hormuz crisis, central banks across Asia – and indeed the world – were forced to face renewed inflationary risks linked to energy costs.
A continued decline in oil prices changes this calculation. Lower inflation will create new room for policymakers to support growth, ease financial conditions and reduce pressure on households.
Investors should pay special attention to this opportunity. Asian stocks have spent years competing against the gravitational pull of US markets. Higher US rates, a stronger dollar and repeated geopolitical shocks have consistently favored US assets.
A combination of lower energy prices, easing inflation and improved growth prospects could strengthen the case for Asian stocks at a time when global investors are increasingly looking for opportunities beyond the US.
There is also a wider strategic implication. Investors are used to analyzing Asia through the lens of trade disputes, supply chain disruptions, tariffs and geopolitical rivalry.
To be sure, these topics are unlikely to disappear. But a stable US-Iran deal would represent something markets have seen remarkably little of in recent years: a reduction in geopolitical friction.
For a region that depends more than any other on cross-border trade, sustainable shipping routes and imported energy, this is of great importance.
Of course, care remains guaranteed. Investors have good reason to remain cautious. Some will see the deal as a diplomatic breakthrough.
Others will see a temporary pause that allows all parties — especially the White House — to claim success while pushing harder issues related to Iran’s nuclear ambitions, sanctions enforcement and regional influence.
The history of Middle East diplomacy is littered with deals that generated optimism before colliding with political reality. Therefore, investors should resist the temptation to treat peace as a security.
But they should also avoid underestimating its economic consequences if it remains even partially. The market sees a US-Iran deal and immediately thinks of oil; Asia must think about growth.
If the deal goes ahead, the region could get the closest thing it has seen in years to an externally generated economic stimulus – one that lowers energy costs, eases inflation, supports trade and improves financial conditions at once. These opportunities rarely come together.
Nigel Green is the founder and CEO of the DeVere Group
