Beyond Oil: How the Hormuz Crisis Threatens ASEAN’s Economies

Author: Giulia Castellan (Junior Researcher Mondo Internazionale GEO - Economics)

1. Introduction: The Hormuz Crisis and Southeast Asia’s Vulnerability

The Strait of Hormuz is a narrow sea passage separating the Arabian Peninsula from Iran and connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea [5]. Although the Strait is only 21 nautical miles wide (39 km) at its narrowest point, it represents one of the world’s most critical oil transit chokepoints [5]. In 2025, an average of 20 million barrels per day (mb/d) of crude oil and oil products were shipped through the Strait of Hormuz [5]. Overall, around 25% of the world’s seaborne oil trade passes through the Strait, with approximately 80% of these flows destined for Asia [5].

This concentration of energy flows towards Asia makes disruptions in the Strait particularly problematic for countries that depend on energy imports. Southeast Asia is especially exposed because many ASEAN Member States rely heavily on energy supplies from the Middle East. The International Energy Agency (IEA) estimates that around 60% of ASEAN’s crude oil imports come from the region, while nearly 45% of its oil product supply depends on Middle Eastern crude [7]. The conflict in the Middle East and the disruption of shipping through the Strait triggered a major energy shock, with significant economic consequences for Southeast Asia, including higher energy bills, inflationary pressures and pressure on local currencies [7][8].

Beyond the immediate disruption, the crisis highlights a broader economic challenge for ASEAN. Higher energy prices can increase production and transport costs, put pressure on households and businesses, and limit governments’ ability to support consumers without increasing public spending. At the same time, investments in renewable energy, energy efficiency and alternative supply routes may become more expensive when inflation, interest rates and financing costs rise [5][1][8]. This creates a dilemma: ASEAN needs to strengthen its energy security, but the economic consequences of the crisis may make this transition more difficult. The central question guiding this analysis is therefore: How can ASEAN manage the immediate energy shock without compromising its long-term economic resilience?

2. Energy Dependence as a Structural Vulnerability

The Strait of Hormuz crisis has exposed three connected vulnerabilities in ASEAN’s energy system: dependence on imported energy, limited diversification and reliance on concentrated supply routes. These problems are becoming more important as energy demand continues to grow rapidly across the region. This combination makes ASEAN particularly vulnerable to external shocks and disruptions in global energy markets.

ASEAN’s total energy demand is now around 40% higher than in 2015, having grown by an average of 4% per year [5]. As shown in Figure 1, this increase has been met largely by fossil fuels, which supplied over 70% of the additional energy demand since 2015 [5]. Coal was the fastest-growing major energy source, with demand rising by 8% per year and its share of the energy mix increasing from 20% in 2015 to around 30% in 2024 [5]. Renewables were the second-fastest-growing source, expanding by 7% per year, while solar PV and wind grew particularly rapidly, at around 35% per year [5]. New projects and policy initiatives are supporting further diversification towards solar PV and wind, particularly in Viet Nam, the Philippines and Thailand [5].

Oil demand has also increased by an average of 1.5% per year since 2015, reaching 5 million barrels per day (mb/d) [5]. At the same time, regional oil production has declined, and crude oil imports are now more than 30% above 2015 levels [5]. This increases the region’s exposure to international price volatility and external supply risks. Overall, despite the growth of renewable energy, fossil fuels continue to play a central role in Southeast Asia’s energy mix. The main challenge is therefore to meet growing energy demand while reducing dependence on imported fossil fuels.

Figure 1. Energy demand and CO₂ emissions in Southeast Asia, 2005–2024

Source: International Energy Agency (IEA), Southeast Asia Energy Outlook 2026 (2026), p. 23, CC BY 4.0.

Growing energy demand, combined with continued reliance on fossil fuels, leaves ASEAN exposed to external supply risks. Figure 2 shows the sources of crude oil and natural gas imports across ASEAN Member States. According to the ASEAN Centre for Energy (ACE), 55% of ASEAN’s crude oil imports originate from the Middle East, while 17% of its natural gas supply comes from the region [3]. This estimate is slightly lower than the IEA’s estimate of around 60%, but both sources show that more than half of ASEAN’s crude oil imports are linked to the Middle East [7][3]. Importantly, the ACE also estimates that 28% of ASEAN’s final oil consumption was directly disrupted by the crisis [3].

Figure 2. ASEAN’s oil and gas import sources and the fiscal impact of rising energy prices in 2026.

Source: ASEAN Centre for Energy (ACE), ASEAN Energy Security Insights: Implications of the Middle East Situation (April 2026).

The crisis has also increased the cost of energy imports. In April 2026, Brent crude oil prices reached approximately $105 per barrel, while liquefied natural gas (LNG) prices reached around $16.5 per million British thermal units (MMBtu) [3]. These prices were well above the planning benchmarks reported by the ACE: $60–70 per barrel for oil and $9–12 per MMBtu for LNG [3]. According to the ACE, importing oil and gas at these prices could increase ASEAN’s monthly import costs by $3.36 billion, around 3.4% above the 2026 expectation [3]. These additional costs increase the import bill and may put further pressure on public budgets when governments use subsidies to protect consumers from higher energy prices.

Although this analysis focuses on ASEAN as a whole, the impact of the crisis varies across Member States, depending on their energy production, reliance on imports and exposure to international prices. For example, the Philippines is highly dependent on imported oil from the Middle East, while Indonesia has a different energy supply and production profile [3][9]. This means that disruptions to the same supply route can create different economic pressures across the region.

3. From the Energy Shock to the Real Economy

3.1 From Rising Prices to Inflation: Households and Business under Pressure

The sharp increase in global oil and natural gas prices is generating inflationary pressures across ASEAN countries. The shock spreads through the economy across four main channels:

1. Higher transportation and logistics costs: more expensive fuel increases the cost of transporting goods and raw materials;
2. Higher production costs: firms face increased energy and input costs, which can reduce profit margins;
3. Higher electricity prices: more expensive energy can also increase the cost of electricity for businesses and households;
4. Higher consumer prices: businesses may pass higher production and distribution costs on to customers, leading to higher prices for goods and services.

The combination of these four consequences could be explained through the process called cost-push inflation: inflation generated by increases in production costs rather than exclusively by stronger consumer demand [1]. Higher inflation means that the prices of goods and services increase, reducing households’ purchasing power because they can buy fewer goods with the same income. At the same time, businesses face higher costs, which may reduce their profits and limit their ability to invest or hire new workers.

According to the International Monetary Fund (IMF), the energy shock has increased short-term inflation expectations across Asia-Pacific [8]. If inflation becomes persistent, central banks may raise interest rates to contain broader price pressures and prevent inflation expectations from increasing further. However, higher interest rates also make borrowing more expensive for households, businesses and governments, potentially slowing consumption and investment. Interest rate increases cannot directly restore disrupted energy supplies, but they can help limit the wider effects of the shock on prices. Governments therefore face a difficult balance: they need to support households affected by rising prices while keeping public spending and debt under control. For this reason, the IMF recommends targeted support for the most vulnerable households rather than broad measures designed to keep prices artificially low [8].

3.2 Different Countries, Different Economic Pressure

As noted above, the energy shock does not affect all ASEAN countries in the same way. Its impact depends on their economic structure, energy dependence and exposure to international markets [1]. As shown in Figure 3, GDP growth is projected to slow in most ASEAN countries in 2026, while inflation is expected to increase across the region. However, the magnitude of these changes varies considerably across countries.

Figure 3. GDP Growth and Inflation Rates in ASEAN Member States, 2025 and 2026 Projections (%)

Source: ASEAN Centre for Energy (ACE), Global Oil Supply Disruptions and ASEAN Energy Investment: Inflation and Financing Cost Pressures, Policy Brief No. 11, August 2026, p. 2.

The Philippines is expected to experience the largest increase in inflation, rising from 1.7% in 2025 to 4.3% in 2026, an increase of 2.6 percentage points (Table 1). The country is particularly exposed to the crisis because of its reliance on imported energy. The Financial Times reports that the Philippines obtains a very large share of its oil supply from the Middle East [9]. Higher fuel prices can also increase food and transportation costs, putting additional pressure on household budgets [1][8].

Lao PDR faces a different but equally significant challenge. Its inflation rate is projected to reach 9.6% in 2026, up from 7.7% in 2025 [1]. However, this is not the highest projected rate in Table 1: Myanmar’s inflation rate is projected at 19%, although this is lower than its 2025 figure of 22% [1]. The distinction is important because the Philippines faces the largest increase in inflation, while Myanmar is expected to retain the highest inflation rate in the table.

Brunei Darussalam provides an important contrast. As a major net energy exporter, the country may benefit from higher oil and gas prices, unlike economies that depend heavily on energy imports. Its GDP growth rate is projected to increase from 0.6% in 2025 to 2.6% in 2026 (Table 1) [1]. This contrast shows that exposure to higher energy prices can differ between importing and exporting countries. However, the projections alone do not prove that higher energy prices explain the entire change in Brunei’s expected growth.

At the regional level, ASEAN’s economic growth is projected to slow from 4.9% in 2025 to 4.6% in 2026, while inflation is expected to rise from 2.3% to 3.1% [1]. These figures illustrate the broader challenge facing the region: the energy shock is putting upward pressure on prices while weighing on economic growth.

3.3 Currencies Depreciation and Additional Economic Pressure

The energy shock can also put pressure on ASEAN currencies. When global oil and gas prices rise, importing countries need to spend more on energy supplies priced in foreign currencies, particularly US dollars. At the same time, uncertainty in global markets can put additional pressure on local currencies. When a currency depreciates against the US dollar, imported energy becomes more expensive in domestic currency, adding to inflationary pressures.

Figure 4. Depreciation of Southeast Asian Currencies against the US Dollar, 27 February–20 May 2026 (%)

Source: Lakshmi, A. A., and Sandlund, W. (2026, 24 May), Financial Times, based on Bloomberg data and FT calculations.

Figure 3 shows that the currencies in the chart weakened against the US dollar during this period. The Philippine peso depreciated by 5.57%, followed by the Indonesian rupiah (4.91%) and the Thai baht (4.73%) [9]. By comparison, the Malaysian ringgit depreciated by 1.91%, the Vietnamese dong by 1.18% and the Singapore dollar by 1.02% [9]. These differences show that currencies across the region have not been affected to the same extent.

These movements matter because currency depreciation can amplify the original energy shock. Countries facing both higher import costs and weaker currencies experience additional pressure on domestic prices. Governments may also find it more expensive to protect households from rising energy bills. For example, at the time of the Financial Times report, Indonesia’s central bank raised interest rates partly to support the rupiah and contain inflationary pressures. Thailand also approved financial support for households and businesses affected by higher costs [9].

However, these responses involve trade-offs. Higher interest rates can help contain persistent inflationary pressures and support currency stability, but they also make borrowing more expensive and can slow economic activity. Government subsidies can provide immediate relief, but they also increase public spending. In addition, currency movements are influenced by several factors, so the graph alone cannot show that the Hormuz crisis caused all the depreciation observed. The challenge for ASEAN is therefore not only to manage higher energy prices, but also to limit their wider effects on currencies, household purchasing power and economic growth.

4.The Financing Challenge

However, strengthening ASEAN’s energy security requires major investments, and the economic consequences of the Hormuz crisis may make these investments more expensive. According to the ACE, ASEAN faces an energy investment gap of approximately USD 68–170 billion by 2030 [1]. At the same time, the IEA highlights the need to increase investment in renewable energy, electricity grids and energy storage to meet future demand and reduce dependence on imported fossil fuels [5]. The problem is that the energy shock can make these investments more difficult to finance. Higher inflation may lead to higher interest rates, increasing borrowing costs and reducing the present value of future project revenues. Currency depreciation can create further problems because imported equipment and loans in foreign currencies become more expensive in domestic currency. This is particularly important because commercial finance accounts for more than 75% of clean-energy investment in Southeast Asia, while the cost of capital can be around twice as high as in advanced economies and China [5][1]. Under these conditions, investors may prefer projects with lower initial costs and shorter payback periods, rather than large electricity grids and battery storage systems. However, these infrastructures are essential for integrating renewable energy and improving the reliability of electricity supply. ASEAN therefore faces a financial dilemma: the crisis increases the need for energy investment while making some of the most important projects more difficult to finance. To address this problem, the ACE recommends expanding financial guarantees, promoting blended finance and strengthening domestic bond markets [1]. These measures could help attract private investment while reducing some of the financial risks faced by developers.

5.Regional Cooperation as a Structural Response

In addition to national policies, stronger regional cooperation could help ASEAN reduce its exposure to future energy shocks. The crisis has shown that energy security is not only a national issue, since countries face common risks linked to international energy markets and supply routes. The ASEAN Economic Ministers have recognised the need for greater coordination and policy preparedness in response to geopolitical uncertainty [4]. One important area for cooperation is the development of the ASEAN Power Grid, which aims to strengthen electricity connections between Member States. According to the IEA, greater cross-border connections could help countries balance electricity supply and demand, integrate renewable energy and improve the flexibility of their energy systems [5]. The IEA also estimates that around USD 27 billion will be needed by 2040 to realise planned cross-border interconnections under this initiative [5]. However, stronger cooperation requires more than political commitments. Governments need to coordinate investment priorities, agree on how the costs and benefits of shared infrastructure should be distributed, and attract sufficient public and private financing. ASEAN could also strengthen cooperation on emergency energy supplies and the diversification of import sources to reduce the risks associated with dependence on a limited number of suppliers [5][3]. Financial cooperation is equally important, particularly through guarantees and other instruments that can help countries with more limited financial resources attract investment [1]. Since ASEAN Member States differ in their energy resources, economic structures and public finances, regional cooperation should complement national policies rather than replace them. The objective should be to use regional integration to reduce common risks while allowing each country to respond to its specific needs.

6. Conclusion: From Crisis Management to Economic Resilience

The Hormuz crisis has exposed the structural vulnerabilities of ASEAN’s energy system and shown how an external geopolitical shock can affect the wider economy. Dependence on imported fossil fuels increases exposure to international price volatility, while higher energy costs can contribute to inflation, put pressure on currencies and make life more difficult for households and businesses. The analysis also shows that the effects differ across countries, depending on their energy resources, economic structures and financial conditions. In the short term, governments need to protect vulnerable households and limit the economic impact of higher prices. However, broad and prolonged subsidies can place additional pressure on public finances, making targeted support a more sustainable option [8]. In the long term, diversifying energy supplies, expanding renewable energy and improving energy efficiency can reduce exposure to future disruptions [5]. Yet these measures require investment precisely when higher interest rates and currency risks may increase financing costs [1]. This is why regional cooperation and access to affordable finance are essential parts of the solution. Ultimately, ASEAN’s challenge is not simply to respond to the current crisis, but to use it as an opportunity to reduce structural vulnerabilities. Achieving this objective will require a balance between immediate economic support, fiscal sustainability and long-term investment. The region’s resilience will depend on its ability to turn the lessons of the crisis into concrete policies that strengthen energy security without creating new economic and financial risks.

Source Classification

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