The tentative peace agreement between the United States and Iran has been greeted with a mixture of relief and caution across much of East and Southeast Asia, a region that has borne more than its fair share of the economic fallout from more than three months of conflict in the Gulf.

For many governments, the immediate reaction has been less about geopolitics than economics. The prospect of a reopening of the Strait of Hormuz, through which a significant share of the world's oil and LNG exports passes, has greatly eased concerns over energy security and rising inflation. Financial markets across the region responded swiftly on June 15 following the deal being announced late the night before. Reuters reported that Asian equities rallied while oil prices fell sharply after Washington and Tehran announced a framework agreement aimed at ending hostilities.

Japan has emerged as one of the clearest beneficiaries of the apparent breakthrough. As one of the world's largest energy importers by volume, the country had been particularly exposed to disruptions in Gulf shipping. Early on June 15, however, Japanese stocks surged following news of the agreement, thus reflecting expectations that lower energy costs could ease pressure on manufacturers and consumers.

Reuters also noted that investors welcomed the prospect of reduced inflationary pressures, even though broader concerns over the weakness of the yen remain. Across the Sea of Japan, South Korea's response has been similarly pragmatic. Seoul spent much of the conflict monitoring energy supplies and assessing potential disruptions to its export-oriented industrial production. As such, the easing of tensions has been welcomed by policymakers and businesses alike, particularly in the petrochemical and manufacturing sectors that are heavily dependent on imported energy supplies. Financial markets also joined the regional rally as fears of prolonged supply disruptions receded.

In China meanwhile, the largest buyer of Iranian crude and the world's single biggest energy importer, has reacted more cautiously. Beijing consistently called for restraint and dialogue throughout the conflict and has tried to position itself as a supporter of diplomatic solutions. As of early June 16, Chinese officials have not yet celebrated the agreement publicly, mindful that previous ceasefires and understandings have proved fragile perhaps. Nevertheless, lower oil prices do offer an economic dividend for a country still grappling with its own sluggish domestic demand and uneven growth post-COVID. The reduction of pressure on global energy markets therefore is likely to be viewed favourably in Beijing, particularly given concerns earlier this year over supply shortages and rising fuel costs.

Across Southeast Asia, the relief has been even more pronounced. The region's economies are among the most exposed to swings in energy prices because of their dependence on imported fuel by way of the spot markets, and their role as manufacturing and transport hubs. Because of this, the conflict had already forced governments to reassess inflation forecasts and budget assumptions.

Singapore, as a major refining and shipping centre, has closely tracked developments in the Gulf throughout the crisis. With its apparent cessation, the city-state's economy benefits again from stable energy markets and uninterrupted maritime trade. Any restoration of normal shipping patterns through the Strait of Hormuz would thus reduce costs for traders and refiners based in the island state.

Indonesia and the Philippines too have been focused of late on the domestic economic implications of the conflict. Both governments had expressed concern over rising fuel costs and their impact on household budgets. Lower oil prices will now ease inflationary pressures and reduce the burden of fuel subsidies. Earlier in the conflict, regional leaders elsewhere in Southeast Asia repeatedly warned that sustained disruptions in Gulf energy supplies could undermine economic recovery and increase living costs across the region.

Further north, Vietnam and Thailand have also welcomed signs of de-escalation. Thailand's tourism sector and airlines in particular stand to benefit from lower fuel costs and reports in regional media are already suggesting that governments are hopeful that calmer conditions in the Middle East will help restore air connectivity and improve business confidence. Vietnam, meanwhile, has been focused on protecting export competitiveness at a time when higher energy costs were threatening margins for manufacturers.

Caution remains, however and that caution is particularly evident in East Asia, where energy security remains a strategic concern. Japan, South Korea and China all maintain substantial strategic petroleum reserves, reflecting long-standing fears over disruptions in Middle Eastern supplies. The events of recent months have only reinforced the vulnerability of the region's economies to instability thousands of miles away.

For now though, the mood across East and Southeast Asia is one of guarded optimism. Lower oil prices, recovering markets and the all-important prospect of restored shipping flows through the Gulf offer immediate economic benefits.