A New Major Storm Begins: Beware, Indonesia and Neighbours Face a Second "Catastrophe"

The waves of impact from the Iran war are hitting Asia’s economy harder, after many countries previously took emergency measures to contain the energy crisis, which are now running out of steam. Rising oil prices, disrupted energy supplies, and surges in transportation and electricity costs are beginning to pressure the region’s economic growth.

When the war broke out and the Strait of Hormuz—a vital route for global oil and gas shipments—was disrupted, Asian governments initially moved quickly by implementing various energy-saving measures. However, those strategies were designed assuming the conflict would be short-lived and energy flows would soon recover.

Now, with the war dragging on without any certainty of an end, the impacts are spreading to various economic sectors. Airfares are rising, shipping costs are soaring, and household energy bills are swelling.

The United Nations Development Programme (UNDP) estimates that around 8.8 million people are at risk of falling into poverty due to the conflict’s fallout. Economic losses in the Asia-Pacific region are even projected to reach US$299 billion.

“Countries with the fewest resources to respond, or the least able consumers to pay, are the ones feeling it first,” said Samantha Gross from the US-based Brookings Institution think tank, as reported by The Associated Press on Tuesday (12/5/2026).

The surge in oil prices is one of the main triggers of economic pressure. Many Asian countries previously budgeted assuming oil prices around US$70 per barrel. However, the war has pushed Brent crude prices up to nearly US$120 per barrel.

This situation is forcing governments to face difficult choices: maintaining expensive energy subsidies that burden the state budget, or cutting subsidies at the risk of public anger over rising fuel prices.

“Once the subsidies run out and inflation starts to rise, countries could face what I call a ‘fiscal time bomb’,” said Kuala Lumpur-based independent energy analyst Ahmad Rafdi Endut.

India is one of the countries starting to feel the multi-layered impacts of the energy crisis. The government previously redirected fuel supplies to meet household gas needs for around 330 million families. However, that policy reduced supplies for fertiliser factories.

This has sparked new concerns amid rising fertiliser prices and the threat of dry weather from the El Niño phenomenon, especially for India, the world’s largest rice exporter.

Indian Prime Minister Narendra Modi has even called for national conservation. He urged citizens to buy local products, reduce overseas travel, work from home, use public transport, and asked farmers to cut fertiliser use by half.

The Philippines has also taken extreme measures by implementing a four-day workweek system to save fuel consumption. The government is also providing special subsidies for poor households.

However, rating agency Fitch Ratings notes that much of the Philippine population still has to bear higher energy costs, causing business activity in major cities like Manila to slow down.

Thailand is facing similar pressures. The country halted its diesel price cap policy less than a month after the war began because subsidy funds ran out. The government is now cutting other expenditures to maintain budget stability amid rising oil prices.

Meanwhile, Vietnam has extended its fuel tax exemption policy to dampen domestic price increases. Nevertheless, aircraft fuel shortages have forced reductions in some flights.

Even though the tourism sector contributes nearly 8% to Vietnam’s gross domestic product.

“Business is not good right now,” said Hanoi tour guide Nguyen Manh Thang. “Tourists are already starting to decrease.”

Countries with weak fiscal conditions like Pakistan and Bangladesh are facing even heavier pressure. They now have to buy oil and gas at much higher and more volatile market prices compared to previous long-term contracts.

As a result, import costs are rising and their foreign exchange reserves are increasingly strained.

According to Ahmad Rafdi Endut, Asian governments will ultimately have to choose between cutting social spending to maintain energy subsidies or increasing debt at the risk of higher inflation.

Even if the war ends someday, analysts warn that recovery will not happen instantly.

Samantha Gross said global oil and gas trade will not return to normal immediately because damaged infrastructure will take weeks or even months to repair.

“This fuel shortage situation will get worse,” said Henning Gloystein from consultancy firm Eurasia Group.

He noted that Southeast Asia is currently the region hardest hit by global energy disruptions.

Beyond Asia, similar pressures are being felt in Africa to Latin America due to surging energy costs and disrupted global supply chains.

CEO of supply chain risk firm Interos.ai, Ted Krantz, warned that complex disruptions in global distribution will continue to generate ongoing impacts across various world economic sectors.

Researcher at Singapore’s ISEAS-Yusof Ishak Institute, Maria Monica Wihardja, assessed that this crisis also reveals the fragility of Asia’s rapidly growing middle class.

According to her, many people are now on the brink of falling back into poverty due to the pressures of living costs.

In the long term, the Iran war is expected to change the direction of energy policy in Southeast Asia. Several countries are accelerating diversification of fossil fuel suppliers, development of nuclear energy, and expanding investments in renewables like solar power.