Iran Conflict Escalation and Its Ripple Effects on ASEAN Economies and Geopolitics
Tensions between Iran and Western powers, particularly the United States and Israel, have intensified in recent months, triggering concerns about broader regional instability. While the conflict remains centered in the Middle East, its economic and strategic repercussions are being felt across Southeast Asia. ASEAN nations, heavily reliant on global energy markets and maritime trade routes, face mounting pressure as oil price volatility, supply chain disruptions and shifting great power dynamics reshape their economic outlook and foreign policy calculations.
How the Iran Conflict Is Affecting ASEAN Economies
The most immediate impact of heightened Iran-related tensions on ASEAN economies comes through energy markets. Iran is a significant player in global oil production, and any disruption to its exports — whether due to sanctions, military action, or maritime restrictions in the Strait of Hormuz — can trigger sharp fluctuations in crude prices. According to the International Monetary Fund (IMF), ASEAN countries imported over 60% of their total energy needs in 2023, making them particularly vulnerable to external price shocks.
Thailand, Vietnam, and the Philippines — all net energy importers — have already seen inflationary pressures rise in tandem with Brent crude prices, which surpassed $90 per barrel in April 2024 amid fears of escalation. The Asian Development Bank (ADB) warned in its April 2024 report that a sustained 10% increase in oil prices could shave 0.3 to 0.5 percentage points off GDP growth across the region, with Indonesia and Malaysia facing the steepest risks due to their large domestic fuel subsidy programs.
Beyond energy, disruptions to shipping lanes pose a growing concern. Although ASEAN nations do not directly rely on the Strait of Hormuz for bulk trade, indirect effects emerge through global supply chains. Key exports — including electronics from Vietnam and Malaysia, palm oil from Indonesia, and agricultural goods from Thailand — depend on stable shipping rates and predictable freight costs. Rising insurance premiums and rerouting of vessels around potential conflict zones have already increased logistics expenses, as noted by the UN Conference on Trade and Development (UNCTAD) in its March 2024 update.
Geopolitical Shifts: US Influence Wanes as China Expands Role
The Iran conflict has accelerated a broader strategic realignment in Southeast Asia, where the United States’ traditional dominance is being challenged by China’s expanding economic and diplomatic footprint. As Washington focuses military and diplomatic resources on the Middle East, its capacity to engage consistently with ASEAN allies has diminished — a gap Beijing is actively seeking to fill.
China has deepened ties with ASEAN through the China-ASEAN Strategic Partnership, pledging over $300 billion in trade and investment by 2025 and advancing infrastructure projects under the Belt and Road Initiative (BRI). In contrast, U.S. Engagement, while still strong through frameworks like the Indo-Pacific Economic Framework (IPEF), has struggled to match the scale and speed of Chinese financing. A 2023 survey by the ISEAS–Yusof Ishak Institute found that 58% of ASEAN respondents viewed China as the most influential economic power in the region, compared to just 31% for the United States.
This perception is further reinforced by divergent approaches to the Iran issue. While the U.S. Has urged allies to join sanctions regimes and naval patrols in the Gulf, several ASEAN countries — including Malaysia and Indonesia — have called for de-escalation and emphasized neutrality, wary of being drawn into great power rivalries. Thailand and Cambodia have even increased diplomatic outreach to Tehran, maintaining channels for trade and dialogue despite Western pressure.
ASEAN’s Response: Seeking Stability Amid Uncertainty
Recognizing the risks of external shocks, ASEAN has reiterated its commitment to regional resilience and non-interference. The bloc’s Outlook on the Indo-Pacific, renewed in 2023, emphasizes dialogue, inclusivity, and economic cooperation as tools to manage great power competition. In April 2024, ASEAN foreign ministers convened a special meeting to discuss the implications of Middle East tensions, urging all parties to avoid actions that could disrupt global energy security or freedom of navigation.
Individually, member states are adopting hedging strategies. Singapore, a global trade hub, has strengthened its maritime surveillance and crisis coordination mechanisms with both the U.S. And China. Vietnam is accelerating efforts to diversify its energy mix, aiming to increase renewable sources to 30% of power generation by 2030, according to its National Power Development Plan VIII. Meanwhile, Indonesia is leveraging its role as chair of ASEAN in 2023 to promote economic resilience initiatives, including regional energy reserves and supply chain mapping.
The Way Forward: Balancing Security and Sovereignty
The Iran conflict underscores a critical lesson for ASEAN: in an interconnected world, distant conflicts can quickly become local challenges. Yet, rather than succumbing to external pressures, the region has an opportunity to assert its strategic autonomy. By investing in energy diversification, strengthening intra-regional trade, and maintaining a principled stance of non-alignment, ASEAN can reduce its vulnerability to geopolitical turbulence.
At the same time, sustained engagement with both traditional partners and emerging powers remains essential. The United States must renew its commitment to the Indo-Pacific not just through security guarantees, but through tangible economic investment and consistent diplomacy. China, for its part, must ensure that its growing influence is perceived as cooperative rather than coercive.
For now, the region watches and waits. The hope is that diplomacy prevails — not only in the Gulf, but in the broader contest for influence across Asia. As one senior ASEAN diplomat noted off the record, “We don’t want to choose sides. We want to survive — and thrive — no matter what happens beyond our shores.”
Frequently Asked Questions
How does the Iran conflict affect oil prices in Southeast Asia?
Although ASEAN countries do not import oil directly from Iran in large volumes, global oil prices are interconnected. Any disruption to Iranian exports or shipping in the Strait of Hormuz can trigger price spikes that affect all oil-importing nations, including Thailand, the Philippines, and Vietnam, which rely heavily on imported fuels for transportation and industry.
Is ASEAN taking sides in the U.S.-China rivalry over the Iran issue?
No. ASEAN maintains a principle of non-alignment and seeks to avoid being drawn into great power conflicts. Member states have consistently called for dialogue and de-escalation regarding Iran, while balancing relations with both Washington and Beijing based on national interests.
Which ASEAN countries are most vulnerable to economic fallout from the Iran conflict?
Net energy importers such as Thailand, the Philippines, and Vietnam are most exposed to rising oil prices. Indonesia and Malaysia, while energy exporters, face fiscal risks from fuel subsidies if global prices remain high. All nations are indirectly affected by potential disruptions to global trade and shipping costs.
Can renewable energy reduce ASEAN’s dependence on volatile oil markets?
Yes. Accelerating the transition to solar, wind, and hydropower can enhance energy security. Vietnam and Thailand have made notable progress in renewable adoption, though challenges remain in grid integration, financing, and policy consistency.