Oil Price Surge Hits ASEAN as Israel-Iran Conflict Escalates

Surging oil prices, driven by the escalating Israel-Iran conflict, are squeezing ASEAN’s manufacturing and travel sectors, threatening economic stability across the region. Brent Crude jumped as much as 14% to above $78 per barrel in June 2025, sparked by Israeli strikes on Iranian energy infrastructure, raising fears of supply disruptions. With ASEAN nations heavily reliant on oil imports, the price spike could inflate production costs and airfares, undermining the region’s export-driven growth and tourism recovery.

A Regional Economic Squeeze

The Israel-Iran conflict, now in its sixth day as of 18 June 2025, has roiled global oil markets. Prices climbed over 4% on Tuesday after Iran and Israel exchanged strikes on key energy facilities, though major export infrastructure remains intact for now. The International Energy Agency (IEA) warned that a broader conflict could disrupt Middle East oil exports, which supply over 30% of ASEAN’s crude. Thailand, Malaysia, and Singapore, heavily dependent on imported oil, face immediate pressure. Manufacturing, which accounts for 20-30% of GDP in these economies, is vulnerable to higher energy costs, potentially curbing output and raising consumer prices.

Global travel, a lifeline for ASEAN’s tourism-driven economies, is also at risk. Fuel costs, representing 30% of airline expenses, are driving up airfares, with the International Air Transport Association forecasting a 5-7% increase in ticket prices across Southeast Asia by Q3 2025. Thailand, expecting 40 million tourist arrivals in 2025, could see arrivals drop if fares rise sharply. Vietnam and Indonesia, key regional manufacturing hubs, face similar challenges as higher fuel costs erode export competitiveness, particularly in electronics and textiles.

ASEAN’s Oil Dependency

ASEAN’s oil production and import dynamics exacerbate the crisis. Indonesia, the region’s largest producer, pumps about 600,000 barrels per day (bpd), but remains a net importer, consuming 1.4 million bpd. Malaysia produces 500,000 bpd but imports 60% of its needs. Thailand, Vietnam, and Singapore are entirely import-dependent, with no significant domestic output. Brunei, a net exporter, produces 80,000 bpd, while smaller producers like Myanmar and the Philippines contribute negligible amounts. This reliance on imports, particularly from the Middle East, leaves ASEAN exposed to price volatility. On 18 June 2025, one US dollar equaled 37.12 Thai baht, making oil imports costlier for Thailand’s 71-million-strong market.

_{Indonesia and Malaysia produce 94% of ASEAN’s oil, but both are net importers. Brunei is the only net exporter. Thailand, Vietnam, Singapore, Laos, and Cambodia rely entirely on imports, amplifying price surge impacts.}

The IEA’s Oil 2025 report, released yesterday, projects global oil demand to dip slightly to 105.5 million bpd by 2030, down from 105.6 million in 2029, driven by electric vehicle adoption and renewable energy shifts. However, this long-term outlook offers little relief for ASEAN’s immediate woes. The report notes, “Annual demand growth will slow to just a trickle over the next several years,” but short-term price spikes could disrupt this trajectory, especially if Middle East supplies falter.

Geopolitical and Trade Ripples

The Israel-Iran conflict compounds ASEAN’s challenges amid global trade tensions. US tariffs, enacted in April 2025, already strain Thailand and Vietnam’s export sectors. Higher oil prices could amplify these pressures, raising production costs for goods bound for Western markets. China, ASEAN’s top trading partner, faces its own oil demand peak in 2027, per the IEA, potentially intensifying competition for Middle East supplies. Saudi Arabia, a key supplier, is expected to see the largest demand decline by 2030 as it shifts to gas and renewables, possibly tightening supply further.

Public sentiment, reflected on social media, highlights regional anxiety. Thai users express concerns over rising fuel costs, while Indonesian manufacturers warn of reduced competitiveness. A prolonged conflict could push Brent Crude toward $90 per barrel, a level last seen in 2022, further straining ASEAN economies.

What Lies Ahead

ASEAN policymakers face tough choices. Subsidies, like Thailand’s fuel price caps, may ease consumer burdens but strain budgets; Thailand’s fiscal deficit is projected at ฿700 billion ($18.9 billion) for 2025. Malaysia and Indonesia could tap domestic production but lack capacity to offset import reliance. By 2026, the conflict’s trajectory could reshape ASEAN’s economic landscape, with higher costs testing the region’s resilience. For now, governments and industries brace for volatility, hoping diplomacy cools tensions before prices spiral further.