From Jakarta to Manila, a region braces for an oil shock

As conflict in the Middle East disrupts global energy flows, Southeast Asian economies are facing a rapid rise in fuel costs alongside mounting pressure on their currencies. The impact is especially pronounced in Indonesia, the Philippines, Thailand and Vietnam four of the region’s largest energy importers.

The shock originates in disruptions around the Strait of Hormuz, a maritime corridor that carries roughly 20 percent of global oil supply, with more than 80 percent of those flows destined for Asian markets. Even limited instability has pushed up freight rates, insurance costs and refining margins, tightening supply across Asia and raising import bills for countries that depend on Middle Eastern oil.

Heavy reliance on imported fuel

The region’s exposure to the current shock begins with its dependence on imported energy. Indonesia, the Philippines, Thailand and Vietnam are all members of ASEAN the 10-country Association of Southeast Asian Nations which collectively represents a fast-growing economic bloc of more than 650 million people. Yet despite strong growth, these economies remain heavily reliant on imported fossil fuels.

Data from the World Bank’s 2026 report on East Asia’s energy systems shows that oil import dependence exceeds 60 to 70 percent of total consumption in countries such as Thailand and the Philippines. Vietnam’s reliance has also risen as domestic production declines, while Indonesia once a major exporter became a net oil importer in the early 2000s and now imports roughly one-third to one-half of its fuel needs.

This level of dependence leaves the region particularly sensitive to external energy shocks, even when disruptions occur far beyond its borders.

Currency and inflation pressures

Currency markets are reacting to rising import bills and shifting investor sentiment. The Philippine peso has weakened by roughly 2 to 3 percent against the U.S. dollar in recent weeks, while the Thai baht has declined by a similar margin. These movements reflect growing concern that higher energy costs will widen current account deficits by increasing the foreign currency required to pay for imports.

As oil prices rise, countries must allocate more dollars to secure energy supplies, putting pressure on exchange rates. A weaker currency, in turn, raises the local cost of fuel and other imports, feeding inflationary pressure. The dynamic is compounded by global capital flows: during periods of geopolitical uncertainty, investors tend to move funds into safer assets, reducing capital inflows to emerging markets and adding further strain on currencies.

Higher fuel costs are also feeding into consumer prices through transport and logistics. In many Southeast Asian economies, fuel accounts for a significant share of transport costs, meaning price increases are transmitted quickly across supply chains. This effect is particularly pronounced in archipelagic countries such as Indonesia and the Philippines, where goods move across multiple islands and higher diesel prices drive up distribution costs.

Governments move to contain the shock

Policy responses have been swift and, in many cases, interventionist.

In Indonesia, authorities have expanded fuel subsidies and signaled budget reallocations to offset rising global prices. Estimates from the finance ministry indicate that even modest increases in oil prices can significantly raise the cost of subsidizing domestic fuel, forcing trade-offs with infrastructure and social spending.

In the Philippines, the government has rolled out targeted subsidies for transport drivers and farmers, while allowing the temporary use of higher-sulfur fuel to ease supply constraints. Officials have also considered reduced workweeks and remote work policies for public sector employees to curb consumption.

Thailand has drawn on its oil stabilization fund to cap domestic fuel prices and cut diesel excise taxes, while Vietnam has reduced import tariffs on petroleum products and expanded the use of biofuel blends to limit reliance on more expensive refined fuel imports.

Across the region, governments are promoting energy conservation including reduced air-conditioning in public buildings and voluntary limits on non-essential travel. While effective in the short term, these interventions risk compounding fiscal pressures if elevated prices persist, as higher subsidies and reduced fuel tax revenues widen budget deficits.

Energy security back in focus

The current shock has renewed focus on energy security. World Bank analysis notes that renewable energy capacity has expanded across East Asia in recent years, but fossil fuels still account for roughly 70 to 80 percent of total energy consumption across much of Southeast Asia.

In the near term, governments are prioritizing supply stability including through increased use of alternative fuels and by sourcing from non-Middle Eastern suppliers such as the United States, Australia and West Africa. The challenge now is whether this shock accelerates diversification or simply reinforces the region’s existing energy vulnerabilities.