Iran Conflict Highlights Vietnam’s Energy Security and Foreign Policy Vulnerabilities

The ongoing war of the US and Israel against Iran has effectively closed the Strait of Hormuz since early March, sparking a severe global energy crisis. This disruption affects roughly a quarter of global seaborne oil trade and a fifth of liquefied natural gas (LNG) supply. As a result, oil and gas prices have surged dramatically, with Goldman Sachs predicting that if these outages continue, benchmark Brent crude could surpass its all-time high of US$147.50 reached in 2008. For Vietnam, this crisis has highlighted significant vulnerabilities in its energy security, likely accelerating the country’s shift towards nuclear and renewable energy sources while complicating its delicate balancing act vis-à-vis major global powers.

Vietnam is already experiencing immediate impacts, including noticeable supply disruptions and fuel shortages. Gasoline prices have risen by 50 per cent since February, while diesel prices have jumped by 70 per cent. Long queues have formed at gas stations, with reports of panic buying and hoarding. Construction at key sites, such as those being prepared for the Phu Quoc APEC 2027 summit and related meetings, faces potential delays due to insufficient diesel for heavy equipment. The rising price and scarcity of jet fuel have led local airlines to increase airfares and consider reducing flights, potentially threatening Vietnam’s recovering tourism industry.

If the war does not abate soon, Vietnam’s ambitious growth trajectory faces long-term economic challenges due to its heavy reliance on imported petroleum and crude oil. In 2025, the country imported crude oil worth US$7.74 billion (14.15 million tons) and petroleum products worth US$6.82 billion (9.96 million tons). Domestic reserves can cover less than 30 days of consumption, significantly lower than those of regional peers. This thin buffer makes Vietnam vulnerable to prolonged disruptions. Under General Secretary To Lam, Vietnam aims for an ambitious average annual GDP growth of at least 10 per cent from 2026 to 2030 and beyond, to achieve high-income status by 2045. However, extended energy shortages will pose a risk to this bold plan, as sustained high fuel costs and supply uncertainties disrupt economic activities, increase production expenses and undermine manufacturing competitiveness.

In response, Prime Minister (PM) Pham Minh Chinh established a Task Force on Energy Security in early March. This group is responsible for monitoring global developments, coordinating with various agencies, ensuring stable energy supplies and advising on policy measures. During the task force meeting on 10 March, Chinh emphasised the need to prevent shortages and directed agencies to diversify energy imports. On 19 March, he issued a directive calling for the accelerated adoption of electric vehicles (EVs), the expansion of charging infrastructure, incentives for EV production and use, the electrification of public transport and the advancement of the E10 bioethanol rollout from June to April, targeting a 10 per cent reduction in gasoline consumption.

PVGas, the gas subsidiary of the state-owned PetroVietnam, has activated emergency protocols by diversifying imports from Australia and the US. The company is also maintaining stable domestic prices through cost-sharing agreements with customers. It has assured them that there will be sufficient supplies for domestic clients through April-May 2026.

However, if the conflict continues, Vietnam’s ability to secure enough oil and gas supplies for its economy remains uncertain and securing stable additional supplies is therefore essential. PM Chinh has reached out to leaders in the United Arab Emirates, Qatar and Angola to obtain supply assurances. Vietnamese officials have also sought assistance from Japan and South Korea to increase access to crude oil, including potentially tapping into their strategic oil reserves, as China’s restrictions on fuel exports have further tightened supply across Asia.

Notably, PM Chinh visited Russia from 22-25 March, underscoring the urgency of the situation, given his impending retirement in early April. During his visit, the two countries signed an agreement to collaborate on the construction of the Ninh Thuan 1 Nuclear Power Plant, one of the two nuclear power projects Vietnam aims to complete within the next decade.

Overall, the Iran conflict serves as a litmus test for Vietnam’s energy security and the adaptability of its foreign policy.

Beyond nuclear energy, Chinh’s visit focused on expanding cooperation in the oil and gas sector. He met with Russian oil and gas suppliers Zarubezhneft and Novatek to discuss bilateral collaborations. At Zarubezhneft, they reportedly discussed proposals for supplying oil, gas and related products to Vietnam on a stable, long-term basis, as well as developing oil storage infrastructure in Vietnam. While it remains unclear whether Vietnam secured a deal for Russian oil and gas to alleviate the Iran conflict-induced shortage, the discussions clearly highlight that it was a primary objective of Chinh’s visit, especially considering that Washington has temporarily eased sanctions on Russia’s energy exports.

The crisis has significant long-term implications for Vietnam’s energy strategy and foreign policy. It is likely to accelerate Hanoi’s transition to nuclear power and renewable energy sources to lessen dependence on oil and gas imports. Moreover, Vietnam may intensify efforts to promote faster adoption of EVs and expand national oil reserves to better cushion against future shocks.

On the other hand, the volatility in oil and gas prices due to the conflict might lead Hanoi to reconsider costly LNG power plants, many of which are planned with US sourcing to rebalance bilateral trade. Concerns over economic losses due to LNG price volatilities and dependency on unpredictable foreign LNG supplies may drive this re-evaluation. If Vietnam decides to scale back these plans while simultaneously increasing its reliance on Russia for energy cooperation in nuclear power and oil and gas, it could strain Vietnam-US relations. Such a shift might raise eyebrows not only in Washington but also in European capitals, further challenging Hanoi’s attempts to manage its relations with major powers.

Overall, the Iran conflict serves as a litmus test for Vietnam’s energy security and the adaptability of its foreign policy. How Hanoi manages short-term shortages through diversification and diplomacy while pursuing sustainable alternatives will influence its economic ambitions under To Lam and its relationships with key partners. Emerging stronger from this challenge could solidify Vietnam’s path toward energy independence and sustained high growth. Conversely, faltering could amplify its energy and strategic vulnerabilities in an increasingly unstable global landscape.

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