Iran oil shock revives 1997 Asian crisis fears — why it may not repeat

The Strait of Hormuz disruption has pushed energy costs higher and put renewed pressure on Asian currencies and import bills, reviving memories of the 1997 Asian Financial Crisis among investors and policymakers.

The shock unfolded as shipping disruptions, insurance withdrawals and temporary shutdowns at key facilities constricted flows of crude and LNG, pushing spot and futures prices sharply upward in a short window. Market indicators show significant upward repricing for oil and gas and elevated freight and insurance premia, amplifying the near-term squeeze on supply chains that route through the Gulf.

Financial markets have reacted with heightened volatility: commodity-linked equities and energy-intensive sectors underperformed, while some emerging Asian currencies depreciated and risk premia widened. Central banks have stepped in with liquidity support and FX interventions in select cases, as higher energy costs feed into inflation and weigh on growth prospects.

Despite surface similarities to 1997, structural differences reduce systemic risk today. Many Asian economies hold larger official reserves, face less short-term external debt rollover risk, have more flexible exchange rate regimes and operate under stronger banking regulation. These buffers, together with diversified import sources and strategic reserves, make a region-wide financial contagion less likely than in the late 1990s.

Market strategists and policy-makers say the outlook hinges on the duration of disruption. A short, focused shock is likely to be absorbed through releases from reserves, temporary fiscal support and market hedging; a prolonged closure would force deeper policy coordination, potential reserve drawdowns and targeted macroprudential steps. Overall, analysts see elevated volatility ahead but judge a full repeat of the 1997 contagion scenario as unlikely given current policy space and resilience measures.