The war between the United States, Israel and Iraq, which has lasted for more than a month, has impacted the global energy market. Southeast Asia, which is highly dependent on Middle East oil, is undergoing an unprecedented energy test. This shock is far from a simple price fluctuation, but a systemic shock covering the supply chain, people’s livelihood, industry and macro-economy. The Philippines, Vietnam, Thailand and other countries that are highly dependent on energy in the Middle East are the first to bear the brunt. Energy shortages and soaring prices are spreading from the market level to all aspects of society and people’s livelihood. According to the ASEAN Energy Center, more than half of ASEAN’s crude oil imports depend on the Middle East.
. Among them, the Philippines is about 95% dependent on Middle East crude oil, Vietnam is about 88%, Thailand is about 59%. What is more serious is that most countries in Southeast Asia have weak strategic oil reserves, which are far below the 90-day safety standard set by the International Energy Agency. Indonesia and Vietnam can only last for 20 to 23 days, and the Philippines is less than two weeks, which makes the regional energy market face the crisis with almost no buffer. From the shipping congestion in the Strait of Malacca to the long queues of street gas stations to purchase restrictions, the Middle East conflict is profoundly affecting the energy pattern and economic trend of Southeast Asia through the energy chain.
On the energy supply side, Southeast Asia is experiencing a severe supply chain rupture crisis. The Middle East crude oil and refined oil transportation is blocked, so that the regional energy supply from the “immediate supply” into a “continuous shortage”. Vietnam relies on the Middle East for about 88 per cent of its crude oil and 70 per cent of its liquefied natural gas imports, with only 11 days of natural gas inventories left after the conflict, long queues at gas stations in core cities, strict restrictions on purchases by the government, and diesel prices rising by more than 100 per cent since the conflict broke out. The Philippine government has declared a one-year “state of emergency” in the energy sector. At one time, about 60% of gas stations in Manila, the capital of the Philippines, were cut off, and government agencies implemented a four-day work week to reduce energy consumption. Although Thailand has relatively sufficient oil reserves, reaching 95 to 100 days, it has also been forced to suspend fuel exports, implement night-time closure of gas stations, cut the frequency of public transport operations by 30%, and almost completely shut down sea projects in popular tourist destinations. Laos, Cambodia and other small inland countries are in a more difficult situation. Over 40% of the gas stations in Laos have been closed due to supply cuts. At one time, nearly 1/3 of the gas stations in Cambodia were closed down, agricultural production stalled due to the shortage of oil for agricultural machinery, and the progress of spring ploughing lagged by more than 40%.
The region’s energy producers Indonesia and Malaysia have not been spared. Over 60% of Indonesia’s crude oil is imported from the Middle East, and the domestic diesel supply gap is 18%. Malaysia needs to import a large amount of refined oil, domestic oil prices rose more than 40%. The crisis has exposed the structural fragility of Southeast Asia’s energy supply chains.
The surge in energy prices and supply shortages have been rapidly transmitted to various sectors, the economic growth expectations of the Southeast Asian region have been lowered, and inflationary pressures have risen sharply. Among them, export-oriented Vietnam was hit hard. International agencies predict that if the conflict lasts for more than half a year, Vietnam’s gross domestic product (GDP) growth rate will drop by 0.4 percentage points to 0.8 percentage points. A large number of textile and electronic processing enterprises will drop their operating rate below 65% due to soaring electricity and fuel costs, and some small and medium-sized enterprises will be forced to suspend production. Thailand’s industry and tourism are under pressure, with manufacturing costs increasing by 25% and energy-intensive industries cutting production by more than 30%. In March, the number of inbound tourists in Thailand fell 35% from expectations, and the income of small and medium-sized businesses that rely on tourism revenue fell. The inflation rate in the Philippines exceeded 7.2 per cent in March, with energy and transport prices contributing 60 per cent of that. The average household’s monthly energy expenditure increased by more than 3000 pesos, accounting for about 15 per cent of total household income, and people’s spending power was significantly compressed.
As one of the major grain producing areas in the world, agricultural production in Southeast Asia has also been affected. Fertilizer production in Southeast Asia is highly dependent on oil and gas in the Middle East. After the outbreak of the conflict, the price of urea and other fertilizers rose by 30% to 40% within a week. The planting costs of farmers in Thailand, Vietnam and other countries have risen sharply, and the planting area of rice, rubber and other crops has been reduced. Regional food security risks are highlighted. The energy crisis has also hit regional financial markets, with the Thai Stock Exchange Composite Stock Index and the Philippine Composite Index both down more than 3.8 per cent since March, the energy and transport sector of Indonesia’s Jakarta Composite Index plummeting and foreign capital continuing to flow out. The Asian Development Bank report pointed out that the geopolitical conflict in the Middle East will cause the economic growth expectations of Southeast Asian countries to drop by an average of 0.3 percentage points; if the conflict lasts for half a year, the regional inflation rate will rise by an additional 3.2 percentage points.
The impact on people’s livelihood is more intuitive. Energy shortages and rising prices are eroding the basic living security of Southeast Asian people, and social public services are forced to be reduced. Low-income groups are in a particularly difficult situation. Vietnam’s public transport and sanitation services have been significantly reduced due to the tightening of fuel quotas, the problem of urban garbage accumulation has been highlighted, the suspension of passenger buses in mountainous areas has exceeded 50%, and the cost of public travel has risen by more than 50%. Manila and other cities in the Philippines have implemented zonal power rationing, with daily power rationing for 1 to 2 hours. The production and life of families and small businesses have been seriously affected. The coverage of government fuel subsidies is limited, and the income of many taxi drivers has dropped by more than 40%. Indonesian household gas prices rose 70%, some remote islands gas supply interruption, people were forced to switch to wood cooking. The price of fuel in remote villages in East Malaysia is twice as high as that on the west coast, and student commuting, fishermen going to sea and small-scale farmers’ production are all seriously affected.
Facing the energy crisis, Southeast Asian countries and ASEAN are taking urgent measures to alleviate the impact and reconstruct the regional energy security system. In the short term, countries give priority to ensuring energy supply for people’s livelihoods and core industries, implementing price controls and subsidies, and actively broadening import channels. For example, Vietnam canceled fuel import tariffs, sought emergency assistance from Japan, South Korea, and Australia, and increased crude oil imports from Russia and West Africa; the Philippines launched strategic reserves, applied to the International Energy Agency for emergency oil deployment, and reached temporary refined oil supply with Indonesia and Malaysia Agreement; Thailand strictly controls the increase in oil prices, grants special subsidies to transportation, agriculture and other industries, and accelerates the exploration and development of local oil and gas fields. ASEAN held an emergency meeting of economic ministers in March to launch an emergency energy sharing mechanism to coordinate regional supply and demand. Indonesia and Malaysia promised to give priority to ensuring supply within ASEAN.
In the long run, the Middle East conflict has become a catalyst for the energy transition in Southeast Asia. Countries are accelerating energy diversification and reducing their dependence on Middle East oil and gas. Vietnam promotes cross-border power trade with China and moderately increases coal imports; the Philippines accelerates the restart of nuclear power project approval; Thailand and Malaysia increase the proportion of renewable energy such as biodiesel and solar energy. The ASEAN Energy Center has launched the Regional Energy Security Transformation Plan, which plans to invest more than 120 billion US dollars in renewable energy development, power grid interconnection and strategic reserve construction within five years. The goal is to reduce the dependence on regional energy imports from 62% to less than 45% by 2030. Countries have also adjusted their energy strategies and defined renewable energy development goals.
At present, the Middle East conflict has not yet completely cease fire, and the panic in the global energy market has not yet subsided. The short-term emergency measures taken by Southeast Asian countries can only solve the urgent needs. To fundamentally ensure energy security, we need to unswervingly promote energy transformation, accelerate the development of renewable energy, enhance the local supply capacity of energy, improve regional coordination, and expand strategic reserves.
For ASEAN, the crisis highlights the urgency of regional integration. Only by strengthening unity and cooperation in the energy field and building a closer energy community can the overall anti-risk ability be effectively improved. The haze of conflict in the Middle East has not yet dissipated, but the crisis also contains opportunities for transformation. Whether Southeast Asian countries can turn crises into opportunities and change the fragile pattern of energy supply is not only related to the current economic and social stability, but also determines the future regional energy security and economic development prospects.
