The War Against Iran and the Fragility of Southeast Asia’s Energy Responses

The Middle East is a critical energy source for Southeast Asia. In 2025, crude oil imports from the region accounted for 56 per cent of ASEAN’s total crude oil imports. The US-Israeli attacks on Iran since 28 February have severely strained the energy systems in Southeast Asia. In response, Southeast Asian countries have taken actions to safeguard energy security. However, the reactive nature of most policy responses risks locking the region into structural fragility.

A major direct impact of the current energy crisis is fuel price volatility on industries and consumers across Southeast Asia. At the time of writing, only consumers in Brunei Darussalam and Indonesia have not seen a major surge. In the Philippines, the government declared a national energy emergency on 24 March after local diesel and petrol prices more than doubled. In Cambodia, Laos, Myanmar, and Thailand, some petrol stations faced supply shortages and had to halt operations. The ripple effects are cascading across industries, driving up the costs of raw materials, operations, freight, and insurance premiums across the region. At the macro level, the energy crisis has weakened currencies, heightened budgetary pressure, and strained economic growth.

Although there is some variation, several immediate responses are common across Southeast Asian countries. First, they are seeking to sustain and increase energy imports by expanding the volumes from existing partners and exploring new import sources. In Cambodia, Laos, the Philippines, and Vietnam, this was followed by cuts in oil excises to ease imports. Second, countries that possess power generation capacity are seeking to boost domestic energy production, including coal. Third, Southeast Asian economies introduced measures to reduce energy consumption and promote conservation. In Brunei, Cambodia, Laos, Malaysia, and Vietnam, authorities also strengthened surveillance to combat oil smuggling and hoarding. Lastly, in regulated markets, governments seek to control energy prices through subsidies, oil funds, or excise tax cuts. In Timor-Leste, the Petroleum Fund has dwindled, yet the government is forced to rely even more on these reserves.

However, the current strategies focus largely on stopgap measures to avoid supply shortages and minimise price surges. While certain short-term interventions are needed, Southeast Asian nations risk falling into deeper vulnerability if they do not undertake bold transformations of their energy architectures. In fact, some of the current policies carry significant risks for the future of the region’s energy system. First, diversification efforts often merely swap one form of fragility for another. For example, Vietnam approached the United Arab Emirates, Kuwait, and Qatar — suppliers that are directly affected by the current military conflict. Likewise, Indonesia and Thailand are pivoting to Russia and the US, while the Philippines is now considering joint oil exploration with China. Reliance on these major powers exposes Southeast Asian countries’ energy security to the risk of geopolitical rivalries.

Second, the resort to coal-based energy will prove costly in the long run. Indonesia decided to increase coal production, while Thailand is reviving the retired Mae Moh coal-fired power plant. In the Philippines, the government has ramped up coal-fired plants and allowed the use of more polluting Euro II-compliant petroleum products. All of these will likely lead to more assets stranded in carbon-intensive infrastructure, making it more costly for countries to transition to net-zero.

Third, the widespread reliance on subsidies will exacerbate fiscal balances. Indonesia risks exceeding its 3 per cent deficit limit; Malaysia’s monthly fuel subsidies have jumped from MYR700 million (USD173.4 million) to MYR4 billion (USD990.8 million); and Thailand’s oil fund is seeking a loan due to a 1.5-billion-baht (USD45.8 million) daily subsidy burden. While these subsidies help relieve the burden, they disincentivise energy efficiency and take up a significant portion of the budget that could have been used to boost renewable energy adoption.

As Southeast Asia navigates this tumultuous episode, it is imperative to complement short-term measures with bold action to build long-term energy resilience, defined as the ability to survive and quickly recover from extreme and unexpected disruptions.

Some countries sent positive signals to build on the current momentum. For example, Indonesia, Laos, and Thailand have introduced programmes to foster renewable energy. Unfortunately, the programmes represent little beyond the acceleration of existing initiatives, with the exception of Vietnam. ASEAN Economic Ministers issued a joint statement on 13 March, underscoring the need to strengthen energy resilience. However, the statement mainly reaffirmed previous commitments, falling short of introducing any bold or breakthrough initiatives.  

As Southeast Asia navigates this tumultuous episode, it is imperative to complement short-term measures with bold action to build long-term energy resilience, defined as the ability to survive and quickly recover from extreme and unexpected disruptions. Several issues deserve urgent attention. First, new investment strategies are needed to expand oil refining and stockpiling infrastructure, particularly in import-dependent countries with limited refining capacity or low reserves. At the regional level, the ASEAN+3 initiative to develop the ASEAN Oil Stockpiling Road Map should be accelerated and expanded.

Second, ASEAN should expedite the deployment of renewable energy. Beyond aspirational goals, it is time for ASEAN to explore enforceable, feasible and viable renewable energy commitments. Lastly, efforts must be stepped up to promote cross-border electricity trade among ASEAN countries. In this regard, regional connectivity initiatives such as the Brunei Darussalam–Indonesia–Malaysia–Philippines Power Integration Project (BIMP-PIP) and the operationalisation of ASEAN Power Grid should be accelerated.

The current energy crisis has exposed the vulnerability of Southeast Asia’s energy supplies. Policy responses focusing on stopgap interventions will only deepen that fragility. Regional countries need to think in longer time horizons.

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