By: Dionisio Babo Soares*
The ongoing war involving the United States, Israel, and Iran, and the resulting instability in the Strait of Hormuz, have exposed, in a particularly stark manner, a structural fragility at the core of the global economic system. For Asia and the Pacific, what is at stake is not merely a temporary disruption of oil flows but a systemic shock to an economic architecture built around highly concentrated energy routes, predictable maritime transit, and the presumption that international law, by itself, guarantees continuity. For decades, Hormuz functioned as a silent stabilizer of global trade, enabling an efficiency-driven model that favored cost minimization over redundancy. The sudden vulnerability of this strait has laid bare the limits of that approach and the asymmetry between the risks borne by small coastal States and the benefits appropriated by major importing economies.
The legal framework governing maritime transit remains clear. Under the United Nations Convention on the Law of the Sea (UNCLOS), the right of transit passage through straits used for international navigation is firmly established, enshrining freedom of navigation as a right rather than a discretionary privilege. However, the current crisis has underscored, in unequivocal terms, the gap between the legal norm and operational reality. The mere existence of a right of passage does not, in itself, guarantee the physical movement of energy, the availability of vessels, the predictability of insurance premiums, or the existence of safe alternative routes in times of conflict. For States that depend on narrow, heavily used maritime straits, the weaponization or “instrumentalization” of any single chokepoint sets a deeply troubling precedent. Should the international community accept that a vital strait may be subjected to arbitrary restrictions, unilateral levies, or prolonged interruptions, any other critical corridor could similarly become the object of coercive tactics, with disproportionate economic consequences for States whose economic survival hinges on a stable and predictable flow of trade and energy.
This gap between the normative order and material conditions reflects a deeper structural problem. Asia’s dependence on Hormuz is not merely geographical; it is systemic, embedded in supply chains, financial systems, shipping markets, and energy infrastructure. Given this complex interdependence, excessive concentration in a small number of straits constitutes a strategic exposure that small States cannot mitigate on their own, yet they are among the first to suffer.
An appropriate response does not mean abandoning the Gulf, nor does it mean pursuing the unrealistic goal of eliminating dependence on Hormuz altogether. Rather, the task is to reduce its systemic centrality by integrating it into a broader, more diversified and more flexible network of energy and trade flows. This requires a shift from passive dependence to active shaping of the system, in which redundancy, diversification and coordination are no longer seen as additional costs but as essential components of economic security. In the short term, Asia and the Pacific should focus on stabilization and risk-reduction instruments that can be rapidly implemented. The creation of a shared regional energy reserve — an “Asian Strategic Reserve” — would be a decisive step in this direction. Anchored in the region’s major economies yet with guaranteed access for smaller States, such a reserve would allow coordinated releases in the event of supply disruptions, dampen panic reactions in markets and secure minimum supply levels for the most vulnerable economies.
The effectiveness of such a mechanism would depend on its geographic distribution — with storage hubs in South Asia, Southeast Asia, and northern Australia — as well as on clear allocation rules that provide concessional conditions for Least Developed Countries (LDCs). At the same time, volatility in shipping and insurance markets should be addressed through maritime risk-sharing instruments that combine public guarantees with private underwriting to stabilize freight costs and war-risk premiums. A regional risk-sharing scheme would make it possible to reroute vessels away from high-risk areas without prohibitive cost increases, thereby ensuring the continued transport of essential goods such as fuel, foodstuffs, and medical supplies. In parallel, governments and operators should establish pre-agreed emergency supply arrangements with alternative providers in West Africa, the Americas, and Oceania, including accelerated customs procedures and temporary tariff adjustments, to enable the rapid reorientation of trade flows in times of crisis.
Legal and institutional coordination warrants equal attention. Although UNCLOS provides the normative foundation, its effectiveness ultimately depends on collective implementation through diplomacy and dedicated institutional mechanisms. A permanent coordination mechanism among States could ensure swift, concerted responses to unlawful restrictions on transit, reinforcing the principle that such corridors cannot be used as instruments of unilateral pressure without consequences. The experience of cooperation in heavily used straits — where coastal States, user States, the shipping industry, and international organizations work together to keep routes safe, open, and environmentally protected — offers a practical reference that could be deepened and replicated elsewhere in the Indo-Pacific. In the face of rising traffic, heightened risks of incidents, piracy, and hybrid threats, strengthening maritime domain awareness, information-sharing, and coordinated response capacities is becoming a central dimension of regional resilience.
In the medium term, priority should shift from crisis management to structural diversification. This entails reconfiguring the geography of trade through alternative corridors that connect the Indian Ocean, Southeast Asia, and the Pacific in a more distributed manner. Investment in deep-sea ports, LNG infrastructure, intermodal logistics platforms, and regional refining capacity will be critical to underpin these corridors and reduce dependence on distant processing centers and a small number of chokepoints. Energy regionalization constitutes a further pillar. Initiatives such as the ASEAN Power Grid, if accelerated and fully operationalized, could transform electricity into a tradable good at the regional scale, thereby reducing dependence on imported hydrocarbons and their associated maritime routes. Cross-border interconnection, regulatory harmonization, and increased renewable energy generation would support a more diversified and flexible energy mix while diminishing the strategic weight of any single strait.
For Least Developed Countries and small island States, the implications of this transformation are particularly critical. Limited fiscal capacity, narrow export bases, and a strong reliance on imports render them especially vulnerable to external shocks and disruptions along maritime routes over which they exercise no effective control. At the same time, their inclusion or exclusion from emerging regional mechanisms will determine whether the future economic architecture becomes more balanced or more asymmetric. Ensuring inclusion requires concrete measures. Regional energy reserves and transport mechanisms should provide guaranteed access quotas for LDCs, preventing their exclusion during periods of scarcity. Concessional financing should prioritize critical infrastructure — ports, storage facilities, renewable energy systems — enabling these countries to participate effectively in diversified trade networks that are less vulnerable to shocks. The creation of subregional logistics hubs, shared by several small States, could further reduce unit costs and enhance their attractiveness as transit nodes.
For Timor-Leste, the current juncture is both a warning and an opportunity. As a small State with a persistent trade deficit and high dependence on imports, Timor-Leste is particularly exposed to disruptions in global supply chains. At the same time, its location between Indonesia and Australia offers strategic value within emerging Indo-Pacific corridors, especially if the country invests in quality port infrastructure, such as the Tibar, and in efficient customs and logistics systems. However, it is essential to avoid reproducing the very patterns of dependence that the Hormuz crisis has brought to light. While petroleum resources will remain central in the short- and medium-term, they should be viewed as a transitional asset rather than the permanent foundation of the economic model. Oil revenues can and should finance investment in renewable energy, physical and digital infrastructure, and human capital, thereby supporting a gradual transition toward a more diversified and resilient economy.
Expanding higher-value-added exports, particularly in agriculture and fisheries, will bolster economic stability and reduce vulnerability to external shocks, while demonstrating that small States can, with appropriate policies, turn geography into a strategic advantage. By positioning itself as a modest yet relevant node in regional trade networks, Timor-Leste can not only mitigate risks but also, in a proportionate manner, contribute to a more resilient economic order in the Indo-Pacific.
Ultimately, the disruption in the Strait of Hormuz serves as a reminder that a model of globalization built on efficiency without redundancy is inherently fragile. The system that underpinned decades of growth in Asia was extraordinarily efficient but insufficiently resilient, particularly for States whose prosperity depends on the predictability of routes they do not control. The challenge now is to redesign that system to preserve its benefits while addressing its most evident vulnerabilities. This does not require abandoning existing trade relationships but rather integrating them into a broader architecture that distributes risk, enhances flexibility, and prevents any isolated disruption in a single strait from destabilizing the whole. For Asia and the Pacific, the way forward lies in coordinated action across multiple domains — energy, infrastructure, finance, and law. For smaller States, it lies in a strategic posture that combines prudence and ambition, anchored in collective mechanisms that enable them to mitigate scale asymmetries. If such an effort succeeds, the Hormuz crisis will cease to be remembered solely as a moment of risk and will instead mark the point at which the region chose to turn vulnerability into opportunity, moving toward a more balanced, resilient, and inclusive economic order.
* This article reflects a personal opinion, for strictly academic purposes, and does not bind any institution with which the author is associated.
