How the Red Sea and Strait of Hormuz are rewriting global trade risk

Geopolitics has re-entered the waterways with force. The Red Sea and the Strait of Hormuz—two of the world’s most critical maritime corridors—are no longer neutral zones of trade. They are now hot zones in a simmering multipolar contest, where geography is weaponised and commerce is collateral. In 2025, this is not just a military story. It’s an economic one.

Combined, these two chokepoints handle over US$1 trillion in goods annually and nearly 20% of the world’s oil flows. The global economy’s stability hinges on their uninterrupted operation. But this year, that assumption has shattered. A string of attacks, retaliatory strikes, and escalating military deployments has turned routine trade routes into dangerous gambles.

The consequences aren’t theoretical. They’re being priced into freight rates, oil futures, and inflation expectations—now.

Once a dependable bridge between Asia and Europe, the Red Sea has descended into volatility. At the center of this collapse: the Houthis of Yemen, backed by Iran, launching precision drone and missile strikes on commercial shipping. Targets include oil tankers, container vessels, and even naval escorts. In response, NATO patrols have intensified, and Israeli air strikes in Yemen have widened. What was once a piracy problem near the Bab al-Mandab Strait has morphed into an organised, state-influenced theatre of war. The Suez Canal remains open, but the cost of traversing it has soared.

• Insurance premiums for Red Sea transits have skyrocketed.
• Major carriers have begun rerouting via the Cape of Good Hope, a detour that adds 10 to 14 days to delivery schedules.
• Djibouti, already a strategic hub, is becoming a pressure point, with US, Chinese, and French forces monitoring the conflict edge-on.

For global shippers, this is a logistical nightmare. For national economies, especially in Asia and Europe, it’s a brewing cost crisis. Electronics, perishables, and fast-moving consumer goods all face rising friction.

If the Red Sea is about trade speed, the Strait of Hormuz is about energy survival. Every day, tankers carrying up to 20 million barrels of crude oil and significant quantities of liquefied natural gas (LNG) navigate this narrow stretch between Iran and the Arabian Peninsula. In 2025, the Strait is again a powder keg.

Following Israeli strikes on Iranian defense assets and US interceptions of Iranian missile launches, Tehran has escalated. The Islamic Revolutionary Guard Corps has deployed naval mines and conducted military exercises simulating attacks on oil tankers. Commercial shipping has been “partially restricted” under national security pretenses.

This is no bluff. By late June:

• Brent crude spiked above US$130 per barrel.
• LNG cargoes to Japan, South Korea, and Southeast Asia were delayed or rerouted.
• Gulf exporters—Qatar, UAE, Saudi Arabia—faced chokeholds at the source.

The US Navy’s Fifth Fleet, based in Bahrain, is on high alert. So are energy buyers across Asia. Any full blockade of Hormuz—even temporary—would spike global inflation, fracture supply chains, and send shockwaves into financial markets.

Asia, more than any other region, depends on open maritime lanes. The combined threats in the Red Sea and Hormuz are already showing ripple effects:

• Rising war risk premiums are being factored into cargo moving through the Indian Ocean and Melaka Strait.
• Shipping congestion is starting to build at Southeast Asian transshipment hubs, as carriers reroute to avoid conflict zones.
• Energy importers—from Malaysia to South Korea—face mounting procurement risk and higher price volatility.

For Malaysia, these impacts are tangible. A prolonged disruption in Hormuz could:

• Disrupt refinery feedstock and petrochemical exports.
• Raise LNG costs, straining utility budgets and consumer energy prices.
• Delay Europe-bound goods, increasing operational costs and delivery uncertainty.

Yet this instability also reframes Malaysia’s strategic relevance. Ports like Port Klang and Port of Tanjung Pelepas could become fallback hubs. If Suez transits falter, rerouted trade through Southeast Asia increases Malaysia’s logistics importance—if the country is ready to capture it.

To move from exposed to prepared, Malaysia should pursue five strategic responses:

1. Diversify LNG Supply
   Reduce dependence on Gulf suppliers by strengthening ties with Australia, North Asia, and Africa. LNG terminals and contract flexibility are key.
2. Strengthen Fuel Reserves
   Build strategic stockpiles of diesel, aviation fuel, and gas to buffer against multi-week disruptions in energy transit.
3. Digitise Port Infrastructure
   Accelerate digital transformation of customs, scheduling, and transshipment systems to accommodate rerouted cargo and increased flows.
4. Reinforce Maritime Security Cooperation
   Boost trilateral patrols with Indonesia and Thailand under the Malacca Strait framework. Intelligence sharing and route safety coordination are now economic, not just military, imperatives.
5. Balance Big Power Ties with Regional Leadership
   Malaysia must hedge between US-led naval security and ASEAN-based cooperation. A clear diplomatic and strategic posture is needed to navigate this multipolar maritime moment.

This isn’t just about shipping lanes. It’s about the system behind them.

Globalisation’s smooth operation relies on invisible infrastructure—secure sea lanes, stable energy flow, trusted choke points. These are now under direct threat. The weaponisation of geography, once seen in land-based conflicts, has moved to the sea. For countries like Malaysia, this changes the operating environment. Economic planning can no longer assume neutral logistics. Strategic autonomy must now include energy security, port resilience, and supply chain hedging. Policy realism—once considered defensive—is now a competitive advantage.

Maritime chokepoints are the new economic front lines. In the chokepoint economy, shipping routes can be shut down in days, but rebuilding trust and rerouting supply chains takes years. The Red Sea and Hormuz aren’t isolated events. They’re signs of a global shift, where military escalation and trade disruption move hand in hand. Small and mid-sized economies must stop seeing these as distant conflicts. They are structural risks that can redefine trade patterns and investment flows.

For Malaysia, the time for contingency planning is over. What’s needed now is execution. With smart hedging, digital readiness, and strategic diplomacy, Malaysia can turn maritime crisis into regional advantage. But the window is narrowing. The sea lanes of 2025 are no longer highways of peace—they are litmus tests for national resilience.