Pacific Money | Economy | Southeast Asia

Southeast Asia and the Middle East Energy Shock

Countries across the region have banned fuel exports and are attempting to reduce fuel consumption in anticipation of a regional energy crunch.

A Pertamina gas station in Yogyakarta, Indonesia, June 23, 2023.

The Middle East is a major global source of energy, particularly crude oil and natural gas. Not only have major suppliers of oil and gas like Saudi Arabia, Qatar, and the UAE suspended some operations as a result of the U.S. military strikes on Iran, but tankers carrying fuel to various parts of the world are unwilling to sail through the Strait of Hormuz at the moment. This has choked off a considerable amount of the world’s supply of crude oil and gas.

As I write this, we do not know how long this state of affairs will last and that uncertainty is causing sell-offs in some markets and pushing up energy prices. The fear is that a sustained campaign involving most of the big energy-producing states of the Middle East will send energy prices skyrocketing and lead to shortages. Let’s unpack this a little with respect to Southeast Asia.

First of all, when we talk about energy, we are talking primarily about three commodities: crude oil, refined petroleum products, and petroleum gas such as liquefied natural gas. The Middle East is a major exporter of crude oil. According to the Atlas of Economic Complexity, Saudi Arabia and the UAE accounted for $208 billion in crude oil exports in 2024, roughly 21 percent of global supply. Choking off this amount of crude at the source for an unknown amount of time is certainly going to cause price volatility and strain supply chains. But it will impact countries unevenly.

Refineries won’t be able to get the crude they need to produce gasoline, and companies that rely on petroleum feedstock will also have to ramp down or look for alternative suppliers at higher prices. We have already seen several petrochemical giants in Southeast Asia declare force majeure, which gives them legal protection if they are unable to meet contractual obligations.

Countries that are big importers of oil (both crude and refined) and natural gas, especially if they rely heavily on the Middle East, will be hit hard. In Southeast Asia, Singapore, Thailand, and the Philippines are big importers, and Vietnam is also a net energy importer. Indonesia and Malaysia have more domestic oil and gas production, which should help reduce the immediate threat of shortages. But energy prices are set on global markets, so oil and gas and the products made from them will certainly become more expensive as long as this uncertainty remains high.

Some of this can be offset through stockpiles and subsidies, which will help cushion price increases, especially if they are temporary. Singapore, for instance, has high exposure to energy imports, but it is also very well situated to lower the impact of higher prices on its citizens and economy.

Thailand, already facing stiff economic headwinds, also has high direct and immediate exposure to these risks but less fiscal firepower to deal with them. This is why we saw a big sell-off in the SET last week. In order to reduce the amount of energy it must import, Thailand banned exports of processed fuels, while the government of the Philippines has moved to a four-day work week. As this crisis drags on, the economic costs incurred by fuel importers like Thailand and the Philippines will become increasingly acute.

Another thing to keep in mind is that while the Middle East is a significant global supplier of oil and gas, it’s not the only source. The United States and Canada exported about as much crude oil in 2024 as Saudi Arabia and the UAE, while Norway, the U.S., Russia and Australia all exported more gas than Qatar. If the conflict is a protracted one, global energy supply chains can and will adjust, although likely at higher prices. This creates a scenario where energy exporters in the country that started this whole mess will stand to benefit significantly from the fallout, while energy importers around the world will be forced to bear the costs.

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The Middle East is a major global source of energy, particularly crude oil and natural gas. Not only have major suppliers of oil and gas like Saudi Arabia, Qatar, and the UAE suspended some operations as a result of the U.S. military strikes on Iran, but tankers carrying fuel to various parts of the world are unwilling to sail through the Strait of Hormuz at the moment. This has choked off a considerable amount of the world’s supply of crude oil and gas.

As I write this, we do not know how long this state of affairs will last and that uncertainty is causing sell-offs in some markets and pushing up energy prices. The fear is that a sustained campaign involving most of the big energy-producing states of the Middle East will send energy prices skyrocketing and lead to shortages. Let’s unpack this a little with respect to Southeast Asia.

First of all, when we talk about energy, we are talking primarily about three commodities: crude oil, refined petroleum products, and petroleum gas such as liquefied natural gas. The Middle East is a major exporter of crude oil. According to the Atlas of Economic Complexity, Saudi Arabia and the UAE accounted for $208 billion in crude oil exports in 2024, roughly 21 percent of global supply. Choking off this amount of crude at the source for an unknown amount of time is certainly going to cause price volatility and strain supply chains. But it will impact countries unevenly.

Refineries won’t be able to get the crude they need to produce gasoline, and companies that rely on petroleum feedstock will also have to ramp down or look for alternative suppliers at higher prices. We have already seen several petrochemical giants in Southeast Asia declare force majeure, which gives them legal protection if they are unable to meet contractual obligations.

Countries that are big importers of oil (both crude and refined) and natural gas, especially if they rely heavily on the Middle East, will be hit hard. In Southeast Asia, Singapore, Thailand, and the Philippines are big importers, and Vietnam is also a net energy importer. Indonesia and Malaysia have more domestic oil and gas production, which should help reduce the immediate threat of shortages. But energy prices are set on global markets, so oil and gas and the products made from them will certainly become more expensive as long as this uncertainty remains high.

Some of this can be offset through stockpiles and subsidies, which will help cushion price increases, especially if they are temporary. Singapore, for instance, has high exposure to energy imports, but it is also very well situated to lower the impact of higher prices on its citizens and economy.

Thailand, already facing stiff economic headwinds, also has high direct and immediate exposure to these risks but less fiscal firepower to deal with them. This is why we saw a big sell-off in the SET last week. In order to reduce the amount of energy it must import, Thailand banned exports of processed fuels, while the government of the Philippines has moved to a four-day work week. As this crisis drags on, the economic costs incurred by fuel importers like Thailand and the Philippines will become increasingly acute.

Another thing to keep in mind is that while the Middle East is a significant global supplier of oil and gas, it’s not the only source. The United States and Canada exported about as much crude oil in 2024 as Saudi Arabia and the UAE, while Norway, the U.S., Russia and Australia all exported more gas than Qatar. If the conflict is a protracted one, global energy supply chains can and will adjust, although likely at higher prices. This creates a scenario where energy exporters in the country that started this whole mess will stand to benefit significantly from the fallout, while energy importers around the world will be forced to bear the costs.

James Guild is an expert in trade, finance, and economic development in Southeast Asia.

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