With the US naval blockade reinstated and oil above US$86 a barrel, Dr Alicia García Herrero tells TNS News that China’s yuan diplomacy, ASEAN’s balancing act and Malaysia’s neutral positioning are all being tested at once
By TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, July 16 – Just weeks after markets began pricing in relief from a US-Iran ceasefire, that relief has evaporated. The United States reinstated its naval blockade on Iranian ports this week, Brent crude has climbed above US$86 a barrel, and Strait of Hormuz shipping has collapsed to a fraction of pre-war levels. Dr Alicia García Herrero, Chief Economist for Asia Pacific at Natixis, tells TNS News that Asian investors and policymakers should stop waiting for a quick return to normal.
Background: how the ceasefire unravelled
The conflict traces back to 28 February 2026, when the United States and Israel launched an air campaign against Iran, killing Supreme Leader Ayatollah Ali Khamenei in the opening strikes and triggering more than five weeks of fighting that disrupted global travel, halted flights across the Middle East, and forced ships to reroute away from the Strait of Hormuz, a corridor that normally carries around a fifth of the world’s seaborne oil and gas trade. Before the war, about 110 vessels a day transited the strait; at points during the conflict, tanker traffic collapsed to almost nothing.
Washington and Tehran, together with Israel, reached an initial ceasefire on 7-8 April, but disputes over Iran’s control of the strait, including its stated intent to charge transit fees, kept reopening the crisis in fits and starts through the spring. A more substantial breakthrough came in mid-June, when mediators announced a memorandum of understanding giving both sides a 60-day window to negotiate a formal end to the war. The presidents of the United States and Iran signed the memorandum on 17 June, and the Strait of Hormuz began reopening to commercial traffic in the weeks that followed. Khamenei’s multi-day funeral concluded in early July, with his son and successor Mojtaba Khamenei notably absent from parts of the proceedings, feeding speculation about strain within Iran’s leadership.
That fragile calm broke down in early July. On 6-7 July, three commercial vessels, the Qatari-flagged LNG carrier Al Rekayyat, the Saudi-flagged tanker Wedyan, and the Liberia-flagged Cyprus Prosperity, were attacked while transiting Hormuz, with the United States and Gulf allies blaming Iran. Washington revoked its sanctions waiver on Iranian oil sales, declared the ceasefire “over,” and has since carried out strikes on Iran for five consecutive days, targeting military and IRGC-linked sites it had left untouched since the truce began. Iran retaliated with missiles and drones toward US positions in Bahrain, Kuwait and Jordan.
The dispute has since sharpened further. The United States reinstated its full naval blockade on Iranian ports on 14-15 July, redirecting commercial vessels toward a new corridor announced by Oman, a move Iran has called a breach of the June memorandum and has threatened to answer by closing its remaining export routes altogether. Kpler shipping data show traffic through the strait has collapsed again, just 21 vessels crossed on 14 July and 7 on 15 July, against the pre-war norm of roughly 110 a day. Oil has climbed sharply as a result: Brent crude touched US$86.19 a barrel on 15 July, up from around US$70 before this latest round of escalation. The United Nations has condemned the renewed hostilities, warning of humanitarian fallout from any prolonged closure of the strait.
Her responses below are dated 14 July 2026, before this latest escalation.
A risk premium that is here to stay
García Herrero’s central message is that Asian markets and policymakers should stop treating the volatility as a passing shock. “Investors should now price in a more persistent geopolitical risk premium for oil rather than assuming quick normalisation after the June ceasefire,” she said.
She singled out “India, Japan, South Korea and several ASEAN economies” as the net importers “most exposed to second-round inflation and current-account pressure if volatility continues into the second half.” China, she added, is “relatively better insulated by its reserves and diversified suppliers, but even it cannot fully escape the knock-on effects on regional supply chains and policy space.”
Beijing’s yuan push gets a tailwind
Perhaps the sharpest insight, drawing on her specialism in China’s financial system, concerns the renminbi. Asked whether a prolonged Gulf conflict could accelerate yuan-denominated energy trade, García Herrero said a longer conflict “would strengthen Beijing’s hand in pushing yuan-denominated energy trade, as both producers and buyers seek to reduce dollar-clearing and sanctions exposure.” She noted that “China has already expanded such arrangements” and that further instability “could accelerate adoption in the energy sector.”
She was careful, however, not to overstate the pace of change. “Full-scale renminbi internationalisation, however, will still be constrained by capital controls and the dollar’s liquidity advantages, so expect steady but incremental gains rather than a sudden leap.”
A more contested Gulf, not a Chinese takeover
On the wider US-China contest for influence in the Gulf, García Herrero described a picture of hedging rather than realignment. A divided American focus “gives Beijing extra room to expand trade, investment and BRI projects in the Gulf,” she said, but Washington “retains strong leverage to rally its GCC security partners against deeper Chinese strategic inroads,” often, in her view, “by linking defence ties to limits on sensitive technology or dual-use investments.”
Her conclusion: “Most Gulf capitals will continue hedging, so the result is likely a more contested economic space rather than outright Chinese dominance.”
Higher costs are now structural
On shipping and trade costs, García Herrero argued that the damage from repeated Hormuz disruptions has already outlasted any single round of fighting. “Repeated Hormuz disruptions have already produced a structural shift in how markets price insurance, freight and supply reliability,” she said. “War-risk premiums are higher and ‘stickier,’ rerouting costs are now routinely built into charters, and long-term contracts increasingly include chokepoint clauses or diversification requirements.”
The upshot, she said, is that “these changes are likely to outlast any single conflict and will keep baseline logistics costs elevated for Asian importers while encouraging greater storage and non-Gulf sourcing.”
ASEAN’s balancing act, under new pressure
Asked how sharpening US-China rivalry combined with renewed Gulf volatility affects ASEAN, García Herrero pointed to both a burden and an opportunity. The combination “complicates ASEAN’s balancing act by adding immediate inflationary and growth pressures on net energy importers,” she said, but it also “opens space for ASEAN as a relatively stable destination for capital and supply chains seeking to diversify away from both direct US-China flashpoints and Middle East risk,” provided, she cautioned, “the grouping maintains unity and centrality.”
Malaysia: protect households, protect neutrality
On Malaysia specifically, García Herrero’s advice was direct. “Malaysia’s most urgent priority in the coming months is to shield households and fiscal space from energy-price volatility while protecting its valuable non-aligned positioning,” she said. That, in her view, requires “well-targeted, fiscally sustainable support measures together with faster diversification into higher-value manufacturing, renewables and services.”
She added that Malaysia’s positioning is itself an asset worth defending: “By keeping economic doors open to both the United States and China, Malaysia can reinforce its role as a trusted neutral hub for trade and investment flows that prize predictability.”
A fragile picture, still redrawing itself
Taken together, García Herrero’s assessment suggests the June ceasefire’s collapse is not simply a return to March’s crisis conditions but a new phase in which the economic scar tissue, higher shipping costs, a stronger push toward yuan settlement, and a more actively contested Gulf, may prove more durable than the conflict’s next diplomatic twist. Events have already moved to test that view: in the two days since she responded, the naval blockade has returned, oil has climbed further still, and Hormuz traffic has thinned to a fraction of its pre-war level. If anything, the trajectory since 14 July reinforces rather than undercuts her central point, that Asian markets and policymakers should stop waiting for a quick return to normal.
- TNS NEWS