As Iran insists on the opening of its ports closed by the United State’s blockade of the Straits of Hormutz aimed at pressuring it to accept a peace agreement based on American terms, there is a rising concern among stakeholders and players around the world of the damaging impact of the Iran war on the world economy. 

Elevated oil and energy prices, the disruption of supply chains and ensuing ripple and structural economic shocks is creating a risk of global “stagflation” which the United Nations warns could push over 30 million people into poverty, with poor countries, particularly in Sub-Saharan Africa and Asia, facing the brunt of soaring food and fuel costs. 

ASEAN Countries Impacted

The ASEAN region, one of the world’s more developed regions, has not been immune. 

The Philippines has come off worst as the country is reliant for 98 per cent of oil imports from the Gulf. With reserves estimated at 45 days, it was the first country in the world to declare a national emergency on March 24. Almost all the nation’s transport and manufacturing is dependent on imported oil. More worrying is that 2.5 million Filipinos work in the Gulf region and their earnings of US $15 billion support millions of households back home.   

Vietnam has been similarly hard hit though without the external remittance concern. With the lowest reserves of 20 days in the region, it has reported severe impact on its transport, logistic and industrial sectors and suspended fuel exports. The energy shock is pushing inflation to rise from 2.5% to 4%, and above 5 in a protracted conflict.

Thailand’s hopes of an economic turnaround with the recent election of Prime Minister Anutin Charnvirakil’s government have taken a big hit. With reserves of 60 days or less, it has banned jet fuel exports and permitted civil servants to work from home. Meanwhile the negative impact on tourism and exports is expected to rise sharply whilst foreign investors weighing the bearish war impact have exited the country, selling off equities and bonds in March at a record pace since 2024.  

Cambodia imports all its oil, with a significant portion coming from Singapore, Malaysia, and Vietnam, after restrictions and conflicts limited supply from Thailand. Although fuel prices have peaked, seeing slight relief as of mid-April, and the government has intervened with monthly subsidies to manage consumer pressure, the significant transportation cost increases have led to higher consumer prices besides impacting the tourism sector and garments exports, two key drivers of the economy.  

In Myanmar, the junta government has implemented alternative driving days to conserve fuel and has forced the nation previously dependent on Iranian oil to look for alternative energy supplies amid disruption. The same severe impact on transport and fuel prices is also found in the more closed country and economy but these are being mitigated by imports from Russia and China. 

Once a major oil exporter and OPEC member and still a top three producer in the Asia Pacific region, Indonesia is now a net oil importer.  With domestic oil production less than 40 per cent of consumption, Indonesia’s dependence on imports of more expensive crude and refined products has seen its economy exposed to war shocks like the rest of the region. Although the government has maintained oil and fuel prices at current levels, this is placing immense pressure on the national budget.

In Laos, a landlocked country, the war has triggered an economic crisis driven by surging energy prices and fuel shortages, with headline inflation rising to 9.7% in March. Amongst mitigation measures undertaken are a 3 day school week to reduce fuel consumption.  

Ranked together with Myanmar as the poorest Asean countries, Tumor Leste’s poor have been directly affected by cost-push inflation for food and fuel. However, the country has a substantial Petroleum Fund (over $18 billion) which is providing a significant cushion against fiscal shock that its larger and more import dependent ASEAN neighbours are experiencing. 

What War Prolongation Will Lead To

Economic Stress: Challenge To ASEAN Export Model of Development

Slower Growth & Recession Risks: The war is dragging down regional GDP. A prolonged conflict could push growth in ASEAN to its weakest level since 2022. Fitch Ratings has noted a severe three-month conflict could spike oil prices to $128 per barrel, posing high credit risks for sovereigns.

Supply Chain Disruption: Higher costs and rerouted shipping not only increase logistics expenses for industry and agricultural production. These disruptions threaten to sever ties with global markets and fragment regional production networks.

Financial Market Instability: Investor confidence has been shaken. Markets across the region have collectively lost at least $216.9 billion since the war began.

Geopolitical Strains: Neutrality Under Pressure

Testing ASEAN’s Neutrality: The conflict has strained ASEAN’s principle of neutrality. While the bloc officially calls for de-escalation, members’ responses diverge. Malaysia, Indonesia and Brunei have condemned the strikes, while Singapore has refused to negotiate with Iran and assumed a neutral position, exposing internal fractures.

South China Sea Dynamics: The war has distracted from concerns in the region. For the first time, more than 51.9% of Southeast Asian opinion leaders identify US global leadership as their top geopolitical worry. This is surpassing concerns about China’s position on the South China Sea.  

​Lack of Consultation: There is significant regional fury over the fact that the US initiated strikes without consulting major Asian allies or ASEAN partners, despite the region being the most vulnerable to energy disruptions.  

The two wars the US has initiated –  tariff and Iran – have considerably weakened American standing in the region and Asia. 

On the tariff front, the US-China trade war, now including “reciprocal tariffs” on ASEAN, has backfired for Washington, with average tariffs on key partners like Vietnam, Thailand, and Malaysia set around 19-24% after negotiations. These  tariffs have shaken ASEAN’s confidence and resulted in uncertainty that threatens the supply chains their economies rely on. In contrast, China continues to offer ASEAN a stable economic relationship and remains the region’s largest trading partner.

With the Iran war, we are also seeing a crisis of trust and principles that will continue even if a peace agreement can be negotiated and honored. This is because the conflict has inflicted “reputational damage” on the US, particularly among ASEAN’s Muslim-majority nations.

Leaders in Malaysia, Brunei and Indonesia, which have condemned the violence in Gaza, perceive a double standard in Washington’s application of international law. This war may see the moral authority and geopolitical standing of the US as a rules-based leader diminish beyond redemption.

© Eurasia Review