The conflict in West Asia is causing major economic shocks across Southeast Asia, with soaring fuel prices and supply chain disruptions hitting vulnerable nations hardest.
AS Iran demands the reopening of ports closed by the US blockade of the Straits of Hormuz, global stakeholders are increasingly alarmed by the war’s expanding shadow.
The blockade, aimed at forcing Tehran into a peace agreement on American terms, has instead triggered elevated energy prices and structural economic shocks.
The United Nations warns of a global “stagflation” risk that could push over 30 million people into poverty. Developing nations in Sub-Saharan Africa and Asia are bearing the brunt of these soaring food and fuel costs.
Asean under pressure: A country-by-country impact
Despite being one of the world’s most dynamic economic zones, the Asean region is struggling to absorb the shock.
The Philippines: Perhaps the hardest hit, the Philippines relies on the Gulf for 98% of its oil. With reserves estimated at only 45 days, it declared a national emergency on March 24. Beyond transport and manufacturing disruptions, the crisis threatens the 2.5 million Filipino workers in the Gulf, whose US$15 billion (RM59.3 billion) in annual remittances support millions of households.
Vietnam: Facing a 20-day reserve – the region’s lowest – Vietnam has suspended fuel exports to protect its industrial and transport sectors. Inflation is projected to climb from 2.5% to over 5% if the conflict becomes protracted.
Thailand: The economic momentum expected under Prime Minister Anutin Charnvirakul has stalled. The government has banned jet fuel exports and shifted civil servants to remote work. Foreign investors, spooked by the “bearish” war outlook, sold off Thai equities and bonds in March since 2024.
Cambodia: Entirely dependent on oil imports, Cambodia has seen transport costs skyrocket, hitting the garment and tourism sectors. While monthly government subsidies offer some relief, consumer prices remain high.
Myanmar: The junta has implemented fuel rationing – alternative driving days – and is pivoting away from Iranian oil towards imports from Russia and China to mitigate the crisis.
Indonesia: Once an Opec member, Indonesia is now a net oil importer. With domestic production covering less than 40% of consumption, the government is struggling to maintain fuel subsidies, placing immense pressure on the national budget.
Laos: This landlocked nation faces a severe crisis, with inflation hitting 9.7% in March. Mitigation measures include a desperate three-day school week to curb fuel use.
Timor-Leste: While the poor suffer from cost-push inflation, the country’s US$18 billion Petroleum Fund provides a fiscal cushion that its larger neighbours lack.
Singapore and Brunei: The two most developed Asean members, though experiencing higher fuel prices, are benefitting from the war; the former from its position as a safe-haven asset hub and the latter from increased oil and gas revenue.
Malaysia: Despite being a net exporter of oil and gas, Malaysia imports 70% of its crude from the Gulf. For now, the nation faces increased subsidy costs, reduced fuel quotas and supply chain disruptions. If the war continues beyond three to six months and oil prices surpass US$110/barrel, it could lead to significant fiscal deficits and reduced economic growth.
Risks of prolonged conflict
Economic stress: The end of the export model?
A long-term war threatens to drag Asean growth to its lowest levels since 2022. Fitch Ratings warns that oil could spike to US$128 per barrel, creating high credit risks for sovereign debt. Beyond immediate costs, rerouted shipping lines are fragmenting regional production networks and severing ties with global markets. Since the war began, regional markets have collectively lost over US$216.9 billion in value.
Geopolitical strains: Neutrality under fire
The conflict is exposing fractures within Asean’s core principle of neutrality:
Internal divisions: While the bloc calls for de-escalation, Malaysia, Indonesia and Brunei have condemned the strikes. Singapore, conversely, with its close relations and security relationship with the US and Israel, has maintained what it has argued is a neutral stance, refusing to negotiate with Tehran.
The pivot of concern: For the first time, 51.9% of Southeast Asian opinion leaders identify US global leadership as their primary geopolitical worry – surpassing concerns over China’s actions in the South China Sea.
Lack of consultation: There is palpable regional “fury” that Washington initiated strikes without consulting Asian allies, despite those allies being the most vulnerable to the resulting energy disruptions.
Diminished moral authority
Between the “tariff war” and the “Iran war”, US standing in Asia is possibly at its lowest ebb ever. The trade war initially targeted at China has resulted in market disruption, supply chain uncertainty and high compliance costs.
Tariffs on Asean member countries have risen to 19% to 40%, with Singapore the sole exception at 10%. This has created a climate of uncertainty and heavily pressured the region’s export driven sectors. In contrast, China continues to offer a stable economic alternative as the region’s largest trading partner.
Beyond economics, the Iran conflict has inflicted deep “reputational damage”. Not only in Muslim-majority nations like Malaysia, Brunei and Indonesia but throughout the region, the US is perceived as applying international law with a double standard.
As trust erodes, the geopolitical stature and moral authority of the US as a “rules-based” leader may be diminishing beyond redemption. This is because this crisis of principles and trust is likely to continue even if a peace agreement can be negotiated and honoured.
Lim Teck Ghee’s Another Take is aimed at demystifying social orthodoxy. Comments: letters@thesundaily.com
