South-east Asian Economies Face Energy Crisis Amid Inflation Pressures

By VirentaNews Staff — May 24, 2026

South-east Asia’s economic recovery is under renewed threat as escalating geopolitical tensions in the Middle East trigger a sharp rise in global oil prices. The region’s net energy-importing economies—particularly Indonesia, the Philippines, Thailand, and Vietnam—are confronting a dual challenge: surging import bills and persistent inflation that constrain monetary policy flexibility. Without strategic energy reserves or diversified supply chains, these nations are scrambling to implement fiscal buffers and energy efficiency measures, but the window for effective intervention is narrowing as crude prices approach $100 per barrel.

Oil Prices and Import Bill Surge

Since the onset of military escalations involving Iran in early 2024, Brent crude prices have climbed over 35%, peaking at $98 per barrel in May—a level not seen since 2022. For South-east Asian nations, which collectively imported over $280 billion in fossil fuels in 2023, the impact has been immediate. According to the International Energy Agency (IEA), the region’s oil import bill has risen by an estimated $45 billion year-to-date. In the Philippines, fuel imports now account for 18% of total import expenditure, up from 12% in 2022. Thailand’s energy import-to-GDP ratio has widened to 7.3%, nearing its 2013 crisis-era peak. Inflation in energy-intensive sectors has accelerated: transport costs in Jakarta rose 11.4% in Q1 2024, while Vietnam’s industrial electricity tariffs increased by 15% in response to fuel cost pass-throughs. These pressures come as central banks, including Bank Indonesia and the Monetary Authority of Singapore, maintain tight monetary stances to anchor inflation expectations.

Key Regional Players and Policy Responses

Regional governments have adopted a mix of targeted subsidies, strategic reserve releases, and accelerated renewable transitions. Indonesia reinstated fuel subsidies in April 2024, committing $8.2 billion to cap diesel and gasoline prices—a move that could widen its fiscal deficit to 3.2% of GDP. Thailand launched a $1.4 billion transport relief package and increased liquefied natural gas (LNG) procurement from Qatar and the U.S. to offset pipeline disruptions. Meanwhile, Vietnam fast-tracked solar and wind projects, aiming to boost renewable capacity from 12 GW to 40 GW by 2025. The Association of Southeast Asian Nations (ASEAN) also convened an emergency energy summit in May, proposing a regional emergency oil reserve mechanism modeled on the International Energy Agency’s framework. However, progress remains uneven; Myanmar’s political instability and Cambodia’s limited fiscal space hinder coordinated action, undermining regional resilience.

Trade-offs Between Stability and Sustainability

The energy shock forces difficult trade-offs between short-term economic stability and long-term climate goals. While subsidies shield consumers from price volatility, they strain public finances and distort market signals, potentially delaying necessary energy reforms. Indonesia’s renewed reliance on fossil fuel subsidies, for instance, risks derailing its Just Energy Transition Partnership (JETP) agreement with G7 nations, which hinges on phasing out coal and scaling clean energy. Similarly, Malaysia’s decision to delay fuel price deregulation may ease political pressure but weakens price signals needed to drive efficiency. On the other hand, accelerating renewable deployment offers a structural solution, yet faces bottlenecks in grid infrastructure and financing. According to the Asian Development Bank, South-east Asia requires $210 billion annually in clean energy investment—more than double current levels—to meet 2030 climate targets. The current crisis underscores the region’s vulnerability to external shocks and the urgency of building energy sovereignty.

Why the Crisis Has Intensified Now

The timing of this energy shock is particularly adverse, coming as South-east Asian economies navigate post-pandemic debt overhangs and weakening export demand from China and the U.S. Unlike the 2022 energy spike, which followed supply constraints from the Ukraine war, today’s disruption stems from direct threats to Strait of Hormuz flows, a critical chokepoint for 20% of global oil shipments. Insurgency attacks on Iranian oil infrastructure and retaliatory naval incidents have reduced tanker availability and spiked insurance premiums by up to 300% on some routes. Moreover, global spare production capacity has dwindled to just 1.8 million barrels per day, limiting OPEC+’s ability to compensate. With U.S. shale output plateauing and no major new fields coming online until 2025, the supply crunch is expected to persist. These factors converge at a moment when regional inflation remains above target in five of ASEAN’s six largest economies, constraining central banks’ ability to respond.

Where We Go From Here

In the next 12 months, three scenarios could unfold. In an optimistic case, de-escalation in the Persian Gulf and coordinated IEA reserve releases could stabilize prices below $90, allowing central banks to ease policy and governments to redirect subsidies toward green investment. A baseline scenario anticipates prolonged volatility near $95, forcing fiscally constrained nations to implement partial subsidy reforms and seek emergency financing from multilateral lenders. A worst-case outcome—triggered by a blockade of the Strait of Hormuz—could push oil above $120, triggering currency depreciations, capital flight, and potential balance-of-payment crises in vulnerable economies like the Philippines and Sri Lanka. ASEAN’s ability to build a shared energy security framework will be tested, with implications for regional integration and geopolitical alignment.

Bottom line — without structural reforms and deeper regional cooperation, South-east Asia’s dependence on imported fossil fuels will remain a critical vulnerability in an era of escalating climate and geopolitical risk.

Source: Financial Times