The Iran War Southeast Asia Hit Hard

By Barbara Kratiuk

For Southeast Asia, which consumes the lion’s share of oil and LNG flowing from the Persian Gulf, the shock caused by the closure of Strait of Hormuz was almost immediate and exceptionally severe. Apart from the parties to the conflict themselves, no other region felt the impact of the blockade so acutely.

In 2024, 84% of crude oil and 83% of LNG transported through the Strait was destined for Asian markets; nearly all ASEAN nations are net energy importers with dangerously low strategic reserves. Most members hold stocks sufficient for less than 30 days—with Philippines holding about 45 days’ worth and Thailand a nominal 106—figures that pale in comparison to Japan’s 254-day supply, South Korea’s 208 supply, and China’s 120 supply.

The economic damage is extensive: fuel prices at pumps are rising at double-digit rates, budget deficits are ballooning under weight of fuel subsidies, industrial supply chains are collapsing, currencies are depreciating, and GDP forecasts are being drastically downgraded. The political response was intense and varied, revealing strategic capabilities—or lack thereof—of individual nations.

Impact on ASEAN countries

The Philippines was the hardest-hit economy in the bloc. Importing 98% of its oil from Middle East, Manila was the quickest and most vocal in its response. Diesel prices hit 130 Philippine pesos per litre, while gasoline exceeded 100 pesos. President Ferdinand Marcos Jr. became the first leader globally to declare a state of energy emergency under Decree No. 110, launching the government’s “UPLIFT” programme. Consequently, the IMF downgraded the Philippines’ 2026 economic growth forecast from 5.6% to 4.1%—one of the sharpest revisions in Asia.

Vietnam is one of the most structurally vulnerable nations in the region. Approximately 85% of its oil imports originate in Middle East, with virtually all of it coming from a single source: Kuwait. Pump prices rose by about 19% despite tax relief measures; fuel queues and panic buying became a daily occurrence. MUFG Research warns if the price of Brent crude remains around $120 per barrel, Vietnam’s GDP growth could fall by over one percentage point—potentially dropping below 7%—and USD/VND exchange rate could exceed 27,000. Hanoi has announced plans to source four million barrels from suppliers outside Middle East, but this amounts to “just six days of consumption.”

Despite being a producer, Indonesia imports over a third of its oil. Its fuel subsidy budget for 2026—set at IDR 381.3 trillion ($22.3 billion)—was based on an oil price of $70 per barrel and an exchange rate of IDR 16,500. Both assumptions are now outdated. Jakarta has introduced fuel purchase limits via the digital MyPertamina QR system, capping consumption at 200 litres per vehicle per day while keeping subsidised prices unchanged.

However, Malaysia, the only net energy exporter in ASEAN, finds itself in a difficult position: 38% of its oil flows through Strait of Malacca, and it imports refined products. Financial cost of capping the price of RON95 gasoline at RM1.99 per litre is immense—monthly subsidies surged from RM700 million before the crisis to RM7 billion in April, and the projected annual subsidy cost stands at RM58.4 billion, compared to the RM15 billion originally budgeted.

Thailand, a regional refining hub, saw its Oil Fuel Fund swing from a surplus of 2.5 billion THB on March 1 to a deficit of 62.4 billion THB by April 26—a shift of nearly 2 billion USD in just eight weeks. Singapore, where gas accounted for 93.1% of the fuel mix in 2025, felt the impact quietly but severely.

Smaller economies suffered too. In Laos, long queues for fuel formed in Vientiane; Myanmar implemented an alternating-day driving system; Cambodia is almost entirely dependent on imports from Thailand—supplies that Bangkok had restricted.

Varied Responses

The earliest, least costly, and most visible policy response was to curb demand by altering work patterns. The Philippines introduced a four-day workweek for government offices; Indonesia allowed civil servants to work from home one day a week; Thailand asked citizens to “ditch their jackets” to reduce reliance on air conditioning; Vietnam urged employers to enable remote work wherever possible to reduce transport demand; Malaysia cancelled government-sponsored Hari Raya open houses, restricted official overseas travel, and discussed work-from-home; Myanmar introduced alternating driving days.

The next step was physical fuel rationing. Indonesia implemented 200-litre limit. Thailand imposed ban on export of refined products, with some exceptions. It launched investigations into alleged oil stockpiling in the southern part and resale to neighbouring countries. In contrast, Laos, Cambodia, and Myanmar resorted to rationing via queues.

Almost every ASEAN government has resorted to extraordinary price interventions and is paying a heavy fiscal price. Vietnam has suspended environmental taxes and VAT on gasoline and diesel and is drawing on its Fuel Stabilisation Fund, which holds only 15–30 days of reserves. Indonesia is operating with a subsidy budget based on oil price over $30 below current market levels. Thailand’s Oil Fuel Fund has swung from surplus to deep deficit. Subsidy costs in Malaysia are roughly 10 times higher than pre-crisis levels, forcing government to eliminate subsidies for higher-income earners—a measure every Malaysian government has discussed for a decade but avoided implementing.

A long-delayed reform

The crisis has exposed the most significant structural flaw in regional energy security: near-total absence of substantial strategic oil reserves. The Philippines has proposed increasing statutory oil stockpiles from 15 to 30 days and LPG reserves from 7 to 21. Despite being a producer, Malaysia lacks formal strategic reserves. Thailand, holding largest nominal reserves at 106 days, has stocks sufficient for just 38 days. Vietnam’s reserves are estimated at less than 20 days. Indonesia has launched energy projects worth IDR 116 trillion.

Shift towards Russia

The most strategically significant moves have occurred on supply side and a shift towards Russia. Indonesian President Prabowo undertook a 4-country tour (Japan, South Korea, Russia, and France) recently. In Japan, business agreements worth USD23.6 billion were concluded; in Seoul bilateral relations turned into comprehensive strategic partnership. Moscow visit resulted in long-term agreements for supply of crude oil and LPG, with Russia proposing an “increase to Indonesian markets.” Vietnam and Malaysia are considering importing Russian crude oil following easing of US sanctions.

Malaysia took an even riskier diplomatic step: Anwar established direct contact with Tehran, speaking to President Masoud Pezeshkian for safe passage of seven tankers. Said he: “Malaysia’s diplomatic relations with Iran are based not only on humanitarianism and solidarity in face of Israeli attacks but also serve our country's energy security.” Philippines too established direct contact with Tehran.

Joint Response

Coordination at bloc level has long relied primarily on rhetoric, lacking operational solidarity. For first time in over a decade, ASEAN is reactivating the long-dormant 2009 ASEAN Petroleum Security Agreement, promoting ASEAN Power Grid project, and discussing joint procurement of oil from sources outside Middle East. Efforts to achieve a 45% share of renewable energy in the region by 2030 are being accelerated.

ASEAN’s hallmark principles of non-interference and consensus-based decision-making hinder its ability to respond effectively to crises. There is no equivalent to IEA’s collective stock-release mechanism, no shared reserves, and no enforcement capabilities. Whether they seize this opportunity or simply patch up the damage and revert to dependency once the Strait reopens will determine ASEAN’s energy security for a generation.---INFA

(Copyright, India News & Feature Alliance)

New Delhi

17 June 2026