Southeast Asia Feels the Squeeze from Middle East War |
Pacific Money | Economy | Southeast Asia
Southeast Asia Feels the Squeeze from Middle East War
Even the region’s energy-rich countries are now being forced to reckon with the economic fallout from the Iran conflict.
Fuel storage tanks in Bangkok, Thailand.
It’s been just over a month since the United States and Israel began attacking Iran, bringing gas and oil shipments that pass through the Strait of Hormuz to a virtual standstill. Strikes on the region’s energy infrastructure have exacerbated the situation, causing price increases in everything from crude oil to jet fuel. However, the effect has been unevenly distributed across much of Southeast Asia.
Supply chain shocks can unfold sequentially over time, rather than all at once. Different countries will be affected differently depending on where they are in the chain, the extent of domestic production and reserves, and where they get their oil and gas from. I think the prevailing hope has been that U.S. President Donald Trump would end the war quickly, which seems to have tempered the market’s reaction somewhat. But in highly import-dependent countries, even short-term disruption will be painful and after several weeks of chaos in global energy markets, Southeast Asia is really starting to feel the squeeze.
The Philippines and Thailand have been two of the most exposed countries. For one, they are net energy importers. The Philippines imports almost all of its oil, making it extremely vulnerable to a sudden supply shock. Energy in the Philippines is very sensitive to market fluctuations, meaning if global prices rise, they are passed on to consumers quickly. Prices have already risen sharply.
As a result, President Ferdinand Marcos Jr. declared a national energy emergency on March 24, mandating a four-day work week for government employees and exploring other steps to try and manage the rise in prices. The declaration of a national emergency gives the government expanded powers to intervene in the market to hold prices down. How much intervention the state can or is willing to afford remains an open question, not just in the Philippines but in all countries across Southeast Asia.
Thailand is also moving more government employees to work from home in a bid to reduce demand, and has developed a contingency fuel rationing plan in case the situation worsens. The retail price of fuel is on the rise, with diesel passing 40 baht per liter to reach an all-time high on March 31. The state is absorbing some of the increase through subsidies, reportedly at a cost of around 1.5 billion baht per day ($45 million), but it may be difficult to sustain that. The government has also restricted fuel exports in order to conserve domestic supply.
This is a good example of how........