Iran adapts as Gulf economies and Asia bear cost of Strait of Hormuz blockade

“Iran adapts as Gulf economies and Asia bear cost of Strait of Hormuz blockade Submitted by Elis Gjevori on Wed, 05/20/2026 - 13:04 The US blockade was intended to force Tehran into concessions, but instead it is undermining perceptions of American power US Central Command Public Affairs photo showing the US enforcement of a maritime blockade against the Iran-flagged crude oil tanker vessel Herby while the latter was attempting to sail toward Iran, 24 April 2026 (US Navy/AFP) Off At the end of April, US President Donald Trump predicted that Iran was days away from its oil fields and infrastructure "exploding", crediting a US blockade on Iranian port. There is little evidence, however, that Iranian energy infrastructure has exploded, particularly since the country has decades of experience in reducing its oil output. Trump appeared to view the blockade as a silver bullet. “The blockade is genius,” the president told reporters. “Now, they have to cry uncle; that’s all they have to do. Just say, ‘We give up.’” Yet Iran’s institutional memory has already kicked in drawing on past crises. During the Iran-Iraq war of the 1980s, the country cut oil production from more than five million barrels per day to less than 1.5 million. Similarly, during the first Trump administration’s “maximum pressure” sanctions, Tehran cut its oil output by two million barrels per day. “We have enough expertise and experience,” said Hamid Hosseini, a spokesman for the Iranian Oil, Gas and Petrochemical Products Exporters’ Association. “We’re not worried.” By some estimates, Iran has already cut its current output by around 400,000 barrels since the US blockade took effect on 13 April. That contrasts with the impact the Israeli-US war is having on Washington’s closest regional allies, as Iran has targeted their energy infrastructures and closed the Strait of Hormuz, through which a fifth of global oil output passes. Kuwait recorded zero crude oil exports in April for the first time since the end of the 1991 Gulf War, according to shipping monitor TankerTrackers.com. Kuwait, which unlike Saudi Arabia and the United Arab Emirates (UAE) has no bypass options, has diverted output towards storage and refining instead of exports, as restrictions on the key maritime corridor have choked off access to global markets. “The dual blockade is damaging Iran, but it is also attacking the foundations of the Gulf economic model,” Andreas Krieg, associate professor of security studies at King's College London, told Middle East Eye. A mural in Tehran of Iran's Supreme Leader Mojtaba Khamenei. (Atta Kenare/AFP) Unlike Iran, however, Gulf economies have little experience navigating sanctions, and the large migrant populations that sustain them are unlikely to remain if economic conditions deteriorate. Iran’s counterblockade of the US blockade turns the “pressure outwards”, Krieg noted. “It means Gulf producers cannot simply watch Iran suffer from a safe distance. Their own exports, logistics, insurance costs, food imports, aviation routes, LNG deliveries and investor confidence are all hit,” he added. While Gulf economies have built up substantial financial reserves over decades, the current crisis “strikes at the credibility of the Gulf as a secure, frictionless hub for energy, capital, aviation and trade”, Krieg added. Ripple effects The UAE’s bet on its alliance with Israel to project regional power has now backfired, with the tourism sector taking a significant hit, according to Moody’s Analytics. Abu Dhabi had relied on what it believed until 27 February was a robust non-oil sector. That assumption has now been tested and, according to Moody’s, proven to rest on quicksand. The ratings agency now expects occupancy in the second half of the year to plummet to 10 percent, down from 80 percent before the conflict. “This represents an effective shutdown of large parts of the hospitality sector,” Moody’s said. Thousands in the tourism sector have been laid off or placed on furlough, while businesses are reportedly delaying salaries or forcing unpaid leave. It is against this backdrop that, in early May, signs emerged that Trump’s initial claims about the blockade were overstated, as he sought a breakthrough with the now-failed “Project Freedom” initiative to help guide stranded ships through Hormuz. The campaign, the US president said, came at the request of countries whose vessels remain stuck in the strait, which he described as “neutral and innocent bystanders”. Attempts to cauterise Iran’s chokehold on the Strait of Hormuz resulted in only two American-flagged ships passing through. The Dubai skyline is pictured as a smoke plume rises from a fire near the city’s international airport, amid Iranian attacks across the Gulf, on 16 March 2026 (AFP) The ripple effects of the war are also likely to hit countries across wider South Asia that depend on remittances and financial flows from the Gulf. The UAE has already moved to pressure Pakistan . As cash-strapped Islamabad attempted to mediate between Iran and the US, Abu Dhabi demanded immediate repayment of a $3.5bn loan. The move was driven in part by politics, with the UAE angered by Pakistan’s mediation efforts, according to analysts. Financial pressures also played a role. In April, reports emerged that the UAE was in discussions with the Trump administration for a financial lifeline , similar to the bailout granted to Argentina last year. The financial impact on the region is likely to cascade over time. “ Egypt , Lebanon and Syria depend on Gulf capital, deposits, tourism, remittances, reconstruction money and political confidence. When Gulf states face revenue losses, they tend to become more selective, more conditional and more strategic,” said Krieg. 'The urgency is survival' The impact of the war has also been strongly felt in Southeast Asia, where major economies remain highly dependent to Middle Eastern energy supplies. The Philippines and Vietnam rely most heavily on Gulf oil imports, at roughly 95–96 percent and around 85–87 percent respectively, while Thailand’s dependence is at least 60 percent. Gas dependence is lower overall, but still notable in countries such as Vietnam and Indonesia. Similar to the global ramifications from the Russia-Ukraine war, Svein Tore Holsether, chief executive of fertiliser giant Yara International, said that reduced supplies of nitrogen fertiliser – largely produced from gas – could cut crop yields by as much as 50 percent. 'The dual blockade is damaging Iran, but it is also attacking the foundations of the Gulf economic model' - Andreas Krieg, King's College Fertiliser prices have already surged by 80 percent as Gulf exports stall and countries compete for supply. Global food prices rose to their highest level since 2023 in April, driven in part by the conflict in the Middle East, according to the Food and Agriculture Organisation. Meanwhile, the fallout has pushed countries like the Philippines and Thailand to introduce four-day working weeks and work-from-home policies to reduce fuel consumption. China expert and geopolitical analyst Arnaud Bertrand, based in Kuala Lumpur, told MEE that fuel prices at the pump have doubled since the war began. “The only reason there hasn't been an open revolt is that the government maintains a subsidised floor…but that subsidy bill has exploded government costs and is therefore not sustainable,” noted Bertrand, adding that “Malaysia is one of the resilient countries – it's an oil producer with the second-largest reserves in Southeast Asia.” Chris Humphrey of the EU-ASEAN Business Council said in a recent interview with CNBC that businesses in the region are already planning beyond the immediate shock. The war is likely to “accelerate the move towards solar and wind and geothermal and hydro power across the region”, said Humphrey. “All the governments in Southeast Asia are absolutely committed to that as a strategy going forward.” For now, at least, the “urgency is survival”, said Bertrand. Going forward, however, the medium- to long-term consequences for US power are “more profound”, he added. Shattering the idea of US power Since the war began, Philippines President Ferdinand Marcos – until recently one of Washington’s closest regional allies – has begun making overtures to China. The region has also taken note of increasingly pessimistic assessments from US policy circles. 'Swinging into action:' The Saudi Arabian pipeline designed to bypass Hormuz Read More » Robert Kagan, one of the United States’ most prominent neoconservative voices and a long-time pro-Israel hawk, warned earlier this month that Washington is heading towards “total defeat” in its war on Iran – a setback he says “can neither be repaired nor ignored”. Writing in The Atlantic , Kagan said the damage inflicted by the conflict cannot be reversed. “There will be no return to the status quo ante, no ultimate American triumph that will undo or overcome the harm done,” he concluded. In Foreign Affairs , former US ambassador to Israel Tom Pickering, who also served as under secretary of state for political affairs under President Bill Clinton, argued that Washington may need to accept some form of arrangement resembling Tehran’s proposals over the Strait of Hormuz. Trump believes the US “holds all the cards and can force Tehran into buckling, regardless of months of evidence to the contrary,” said Pickering. Pickering concluded that the US may ultimately have to accept some form of “surcharge” over the strait. “This war has shattered the idea that US power, whatever its flaws, at least worked towards open sea lanes and at least helped protect you if you were an ‘ally’,” said Bertrand. War on Iran News Post Date Override 0 Update Date Mon, 05/04/2020 - 21:19 Update Date Override 0

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