The Hormuz crisis has exposed Southeast Asia’s structural energy vulnerabilities, turning external disruption into region-wide economic stress
On 28 February 2026, the United States (US) and Israel launched a joint military offensive against Iran, leading to the rapid closure of the Strait of Hormuz—one of the world’s most critical energy chokepoints. By 4 March, maritime traffic had fallen to less than 10 percent of pre-war levels, pushing oil prices to US$ 95 per barrel and sharply increasing LNG prices in Asian markets. Although a temporary ceasefire enabled limited shipping to resume, transit remains restricted and volatile, as intermittent disruptions keep flows well below normal levels.
This development carries significant strategic implications for Southeast Asia. According to the US Energy Information Administration, 84 percent of crude oil and 83 percent of LNG transiting the Strait in 2024 were bound for Asian markets. The International Energy Agency (IEA) had already flagged in its Southeast Asia Energy Outlook 2024 that the region relies on the Middle East for 60 percent of its current oil imports—a vulnerability that the 2026 conflict has now transformed into an acute energy emergency. The crisis underscores the structural vulnerability of Southeast Asia’s energy dependence on distant and volatile supply regions.
Although a temporary ceasefire enabled limited shipping to resume, transit remains restricted and volatile, as intermittent disruptions keep flows well below normal levels.
The ongoing energy crisis in the Middle East has highlighted how Southeast Asian countries’ energy and economic security are intertwined with regional political dynamics. Developments in the Middle East have again underscored a critical point: conflict in the region has the potential to destabilise economic stability and worsen the energy situation, as shown in Figure 1.
Figure 1: Southeast Asian Countries' Import Dependence on the Middle East
Source: Vietnam Investment Review
Major regional countries are facing acute effects from the oil crisis. Food security has also emerged as a serious concern as a result of fertiliser shortages. Beyond the immediate implications, the oil crisis has raised serious concerns over supply chain resilience and economic security. All these factors together have put regional governments on notice. To address the immediate crisis, many Southeast Asian countries have reached out directly to Iran to secure safe passage for their oil supplies.
However, countries like Cambodia, Laos, and Myanmar, which are reliant on their neighbours for oil supplies, have managed the crisis by securing alternative sources. For instance, following restrictions on fuel exports from China and Vietnam, Cambodia has diversified its imports towards Singapore and Malaysia. The protracted oil crunch has now contributed to rising inflation across the region, directly affecting the general population.
Table 1: Middle East Crisis and its Effects on Southeast Asian Countries
| Southeast Asian Country | Percentage of Energy Imports | Impact of the Crisis |
| Philippines |
• ~95–98 percent crude from the Persian Gulf; • ~100 percent overall oil import dependent |
• Most vulnerable ASEAN state — worst hit by ADB and ING assessments • Fuel prices surged past ₱100/L; 10–20 percent mandatory power/fuel cuts across all government agencies • 4-day government work week imposed; President Marcos released ₱21.47B emergency fund • Only 50–60 days of commercial reserves (in private hands); importing 700,000 bbl of Russian crude |
| Thailand |
• ~59 percent crude from the Gulf; 28 percent of • LNG/LPG from the Gulf; 67 percent nitrogen fertiliser from the Gulf |
• Diesel capped at 29.94 baht/litre via Oil Fuel Fund; government work-from-home (WFH) orders • Banned exports of processed fuels (except to Laos and Myanmar); SET suffered a major sell-off Rayong Olefins suspended plant operations due to a feedstock shortage • 110 days of reserves; biofuel blends increased from 7 percent to 10 percent |
| Vietnam |
• ~87–88 percent crude from the Gulf; • 49 percent of LNG/LPG from the Gulf |
• Diesel prices surged ~84 percent since conflict began; gasoline prices up ~21 percent • Fuel import tariffs cut to 0 percent; government secured 4M barrels from non-Gulf sources • Smallest strategic petroleum reserve in the region • WFH encouraged; jet fuel shortages loomed after China and Thailand halted jet fuel exports |
| Singapore | ~52 percent crude from Gulf; 95 percent of power from gas |
• Refineries cut output due to constrained crude; Aster Chemicals declared force majeure • Deeply exposed via LNG — 95 percent of power generation depends on natural gas • Deep fiscal reserves cushion consumers from the worst of price spikes • Diversifying imports with Russian crude via spot markets |
| Malaysia |
• ~69 percent of crude imports from the Gulf; • 28 percent power from gas (mostly domestic) |
• Net oil and LNG exporter; limited physical supply disruption but exposed to inflationary pressure • Fertiliser makers suspended new orders; semiconductor firms are concerned about helium supply disruption • Possible fuel export restrictions might be applied |
| Indonesia | ~20 percent crude oil from the Gulf; 75 percent sulphur imports from West Asia |
• Southeast Asia's largest economy; oil subsidies budgeted at US$ 70/bbl • Fuel subsidies of 381.3 trillion rupiah (US$ 22.5B) are at severe risk of overrun • Accelerated biodiesel program (B50 blend); PT Chandra Asri Pacific declared force majeure Only ~21–23 days of oil reserves |
| Myanmar | No significant domestic refining capacity; reliant on refined fuel imports from Thailand, Vietnam & Singapore |
• Military junta imposed an alternate driving day system (odd/even licence plate rationing) • Fuel shortages reported from the early days of the Iran war; military offensives at risk of fuel disruption • Dependent on Thailand for fuel supplies; severely limited fiscal capacity to absorb price shocks. Ongoing civil conflict compounds the humanitarian energy crisis |
| Cambodia | No domestic refining capacity; fully reliant on imports from Thailand, Vietnam & Singapore |
• ~2,000 of 6,300 fuel stations forced to close; ~400 still shut as of mid-March 2026 • Less than 30 days of fuel reserves; the government announced plans for its own refinery and stockpile by 2029 • Elimination of import duties and VAT on fuel • Will import more fuel from Singapore and Malaysia |
| Laos | No domestic refining capacity; reliant on imports from Thailand & Vietnam;some hydropower exports |
• Receives oil exports from Thailand under a bilateral energy cooperation arrangement • Has procured significant fuel supplies from Vietnam and other sources to ease shortages, while reducing fuel taxes and implementing administrative measures to curb consumption |
| Brunei | US$ 505.47 crude import dependent despite being a net oil/LNG exporter |
• Net oil and LNG exporter — stands to benefit from higher global prices • Reinforced energy security partnerships and implemented measures to control domestic fuel consumption • Sultan Hassanal Bolkiah engaged with the Australian officials to secure supply chain stability • Introduced regulations requiring foreign-registered vehicles to enter the country with at least three-quarters full fuel tanks |
| Timor-Leste | No domestic refining capacity; fully reliant on imports; strategic reserves 20–65 days |
• Bayu-Undan gas field shut down in June 2025 • Fuel situation 'reportedly stable' as of mid-March 2026 IMF warns Petroleum Fund could be exhausted by late 2030s if drawdown rates continue |
Source: Compiled by Author
Government responses across Southeast Asia have broadly centred on three strategies: demand management, fiscal intervention, and external diversification (See Table 1). These measures reflect attempts to manage immediate shortages while limiting wider economic disruption.
A key response has been demand suppression. Governments have introduced measures to reduce fuel consumption, including remote work policies, shorter workweeks, and administrative restrictions. The Philippines implemented a four-day work week for government employees, while Thailand and Vietnam promoted work-from-home arrangements. Myanmar imposed fuel rationing through an odd–even vehicle system, and countries like Cambodia and Laos introduced consumption controls amid visible shortages.
A key response has been demand suppression. Governments have introduced measures to reduce fuel consumption, including remote work policies, shorter workweeks, and administrative restrictions.
At the same time, fiscal tools have been widely used to cushion the impact of rising prices. Thailand has relied on its Oil Fuel Fund to cap diesel prices despite growing deficits, while Indonesia has maintained fuel subsidies to contain inflation, straining public finances. Vietnam reduced fuel import tariffs and used its stabilisation fund, and Cambodia eliminated import duties and VAT on fuel. In contrast, Singapore has leveraged its financial reserves to absorb price shocks rather than relying heavily on subsidies, highlighting differences in fiscal capacity across the region.
A third pillar has been external diversification. Several countries have sought alternative suppliers and routes, including engaging Iran to ensure safe transit and increasing imports from non-Gulf sources. The easing of US sanctions on Russian energy has also prompted countries such as Vietnam, Indonesia, and Malaysia to explore Russian crude imports. Intra-regional adjustments—such as Thailand restricting fuel exports while maintaining supplies to neighbouring countries under existing energy arrangements —have helped manage shortages.
Overall, these responses remain short-term and reactive, addressing immediate pressures without resolving deeper structural vulnerabilities in energy dependence and supply resilience.
The easing of US sanctions on Russian energy has also prompted countries such as Vietnam, Indonesia, and Malaysia to explore Russian crude imports.
The Strait of Hormuz crisis has brought to light Southeast Asian countries' critical dependence on the Gulf for their oil and gas supplies. To address these vulnerabilities at the regional level, ASEAN is exploring mechanisms to strengthen energy resilience through innovative solutions. However, much of the effort has been at the national level, with countries seeking to offset the impact by negotiating safe passage with Iran or exploring alternative suppliers such as Russia. With the US lifting sanctions on Russian oil, countries like Malaysia, Indonesia, and Vietnam are negotiating long-term oil supply deals. Given the long-term impact of Iran-US tensions, dependence on Russia is expected to continue, with Russia emerging as a critical energy partner.
While this will benefit Russia by consolidating its regional position, it will place Southeast Asian economies in a difficult position. The Trump administration’s oscillating policy on Russian sanctions presents an additional challenge for these countries. Although Southeast Asian states have, for now, managed the oil and gas crunch, a prolonged crisis could have serious consequences for their economic and food security. The crisis will likely directly impact the budget projections, inflation, and public spending.
The Trump administration’s oscillating policy on Russian sanctions presents an additional challenge for these countries. Although Southeast Asian states have, for now, managed the oil and gas crunch, a prolonged crisis could have serious consequences for their economic and food security.
Another aspect of the episode is how the energy crisis has compelled many countries to turn to fossil fuels such as coal to bridge supply gaps. Countries such as Indonesia and Thailand have lifted caps on coal-based power generation. At the same time, the crisis has underscored the importance of transitioning to renewable energy, with countries such as Indonesia, Laos, Thailand and Vietnam doubling down on renewable energy programmes.
Overall, the US–Iran war has highlighted the critical interlinkages between Southeast Asia’s economic and energy security, exposing the region’s strategic vulnerabilities and the long-term political and economic risks of energy dependence. This crisis has also compelled Southeast Asian countries to develop more robust mechanisms to manage future shocks, rather than reacting in an ad hoc manner to recurring crises.
Sreeparna Banerjee is an Associate Fellow with the Strategic Studies Programme at the Observer Research Foundation.
Abhishek Sharma is a Junior Fellow with the Strategic Studies Programme at the Observer Research Foundation.
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Sreeparna Banerjee is an Associate Fellow in the Strategic Studies Programme. Her work focuses on the geopolitical and strategic affairs concerning two Southeast Asian countries, namely ...
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Abhishek Sharma is a Junior Fellow with ORF’s Strategic Studies Programme. His research focuses on the Indo-Pacific regional security and geopolitical developments with a special ...
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