Indonesia Panic Signals Asia Is Entering the Dangerous Phase of the Hormuz Crisis

Today’s correction in crude oil missed the larger macro story developing underneath currency exchanges particularly in Asia. Brent still settled near $110.66/bbl while WTI held above $108.62/bbl despite diplomatic headlines regarding Iran. June ICE gasoil closed at $1,220.25/mt, down only 1.07% on the day, while Jun/Dec backwardation narrowed to $265/mt from $275/mt previously. Heating oil continued strengthening with June HO at $4.1241/gal, up 71.1% over three months, while Jun/Dec HO backwardation widened further to 68 cts/gal. These are still severe shortage structures.

The market continues to treat the Hormuz crisis primarily as an oil story. That is increasingly incorrect. This crisis now extends into fertilizers, sulphur, helium, food oils and Asian balance-of-payments stability. Roughly 20-21 million bpd of crude and refined products normally transit Hormuz, but the Strait also underpins approximately 25-35% of global fertilizer trade, nearly 50% of globally traded sulphur, around one-third of global urea exports, 20-30% of ammonia trade and roughly one-third of global helium production.

Fertilizer exports through Hormuz reportedly fell to only 1.495 million mt during the first month of the crisis versus 3.364 million mt during the same period last year, a decline of roughly 56%. Sulphuric acid prices have reportedly surged from near $150/mt to as high as $800/mt in some regions. This matters because sulphuric acid is critical for phosphate fertilizers, copper leaching, lithium extraction and battery processing. Qatar alone accounts for roughly one-third of global helium production, meaning the disruption now extends directly into semiconductor, aerospace and medical supply chains.

The macro consequences are beginning to emerge most visibly in Asia and particularly Southeast Asia.

Indonesia moved to the center of attention after reports emerged that President Prabowo may announce a state-controlled export agency for strategic commodities including crude palm oil, coal and minerals. Jakarta equities reportedly fell as much as 4.2% intraday while the rupiah weakened another 0.4% to fresh record lows. The Jakarta Composite is now down more than 26% year-to-date while USD/IDR surged toward 17,714, versus levels near 14,000 in 2021. That represents approximately 26% rupiah depreciation in five years.

The timing is not accidental. Indonesia imports roughly 800-900kbd of refined and crude petroleum products while simultaneously depending heavily on commodity exports for FX inflows. With Brent above $110/bbl and front-month ICE gasoil still above $1,220/mt, the government now appears increasingly focused on controlling export proceeds and FX repatriation. Reports indicate exporters would potentially be forced to sell through a state-linked entity supervised by Danantara. This type of government intervention matters because it usually emerges when policymakers become concerned about capital flight, reserve depletion and imported inflation.

The broader market should not ignore what is happening in Southeast Asia. During the 1997-1998 Asian financial crisis, Thailand’s baht collapse initially appeared localized before contagion spread rapidly across Indonesia, Malaysia and South Korea. Indonesia’s rupiah eventually lost more than 80% of its value during that crisis while GDP contracted by roughly 13% in 1998. Today’s situation differs structurally because Asian banking systems are stronger and FX reserves are larger. But one important aspect may actually be worse than 1997: the inflation shock itself.

During the Asian crisis, crude oil averaged near $20/bbl. Today Brent is above $110 while fertilizer prices, sulphur prices, diesel prices and food oil prices are all simultaneously elevated.

India is now beginning to show similar stress characteristics. The rupee continues weakening while edible oil import costs remain historically elevated. India imports approximately 85% of its crude oil requirements and remains the world’s largest vegetable oil importer at roughly 16-17 million mt annually. Indonesian June CPO offers were near $1,215/mt FOB while soybean oil into India was quoted around $1,287-1,295/mt CFR west coast India. Palm cargoes into east coast India traded near $1,242-1,245/mt CFR.

At the same time, market discussions remain subdued because traders increasingly fear higher edible oil import duties as New Delhi attempts to protect domestic consumers and oilseed farmers from imported inflation.

Most concerning is that the stress is now spreading beyond weaker emerging markets.

USD/JPY traded near 159 today versus roughly 110 in 2021. That represents approximately 44% yen depreciation in five years despite Japan remaining a developed economy with large FX reserves and persistent current account surpluses. Japan imports nearly all of its crude oil and LNG requirements, meaning higher energy prices directly pressure the currency and domestic inflation structure.

Once even the yen weakens materially during an energy and commodity shock, the problem is no longer isolated to weaker economies. It suggests a broader structural deterioration in Asia’s external balances.

At the same time, food oils are already trading at crisis-era levels. The FAO vegetable oil index climbed to 193.9 in April, its highest level since July 2022 and up 148% from the April 2020 lows near 78. Palm oil prices have now risen for five consecutive months according to the FAO report, supported by stronger biofuel demand and higher energy prices.

Meanwhile downstream fuel markets continue flashing tightness signals. June heating oil closed at $4.1241/gal while gasoline cracks weakened modestly. RBOB gasoline futures for June fell 2.03% on the day to $3.6842/gal, but backwardation remained elevated with Jun/Dec RBOB still near $1.01/gal. Distillates continue outperforming gasoline structurally because the global system remains short middle distillates.

US soybean oil continues trading largely as a domestic policy derivative rather than a globally connected vegoil market. D4 RINs held near $2.074 while Jul soybean oil traded around 75.66 cts/lb, up 25.6% over three months. BOPO remained near $523/mt for July and $444/mt for Q3 despite palm oil prices above $1,140/mt. Bean oil as a percentage of gasoil climbed back above 140% for nearby months while BOHO remained near $1.65/gal. Even with these elevated prices, biodiesel operating margins are estimated near only 19 cts/gal after methanol and glycerin economics, despite diesel above $4/gal and D4 RINs above $2.

The disconnect between US and global markets remains extraordinary. Brazilian FOB Paranaguá soybean oil continues trading near -2100 to -2200 points against CBOT while domestic US bean oil remains supported by RINs and future RVO expectations.

Europe also stayed structurally tight despite softer gasoil flat price action. ARAG FAME 0 settled near $1,501/mt while RME closed around $1,532/mt and UCOME remained elevated at $1,653/mt. HVO Class 2 continued trading near $2,956/mt while HVO versus gasoil escalated swap premiums still held above $1,620/mt. RME/FAME spreads recovered to $31/mt after collapsing to only $8/mt last week while UCOME/FAME held near $152/mt.

The market narrative today focused on softer crude after diplomatic headlines. The more important signal is that the Hormuz crisis is now evolving into a broader Asian imported inflation and balance-of-payments shock. Indonesia is already showing visible signs of financial stress through FX weakness and state intervention. India faces mounting edible oil and energy import pressure. Most concerning is that even structurally strong economies like Japan are now experiencing major currency depreciation.

Once governments begin discussing export controls, FX repatriation schemes and higher food import duties simultaneously, the problem has already moved beyond commodities and into financial stability.