Introduction

On February 28, 2026, the United States and Israel launched a series of strikes on Iran. In response, the Islamic republic effectively blockaded the Strait of Hormuz, through which a fifth of the world's oil and liquefied natural gas passes. The head of the International Energy Agency described what followed as the largest disruption to global energy supply in history, worse than the two oil shocks of the 1970s and the gas turmoil after Russia's invasion of Ukraine combined.

For Southeast Asia, the consequences have been swift and serious. In Manila, diesel experienced a 140% increase, from ₱55 to ₱130 per litre within four weeks, before President Marcos declared a state of national energy emergency. The Vietnamese government has tapped into its emergency funds to stabilise prices, while Vietnam Airlines cancelled dozens of domestic flights due to fuel shortages. Laos moved to a three-day school week. Cambodia saw fuel prices rise 68% in weeks. Thailand ordered its coal plants back to full capacity and urged citizens not to hoard. In Myanmar, private vehicles were restricted to alternate driving days.

The crisis provides a vivid expression of Southeast Asia's structural energy vulnerabilities, one that the region has consistently failed to address. Governments in the region have repeatedly chosen short-term relief over structural reforms when previous crises arose, leading to an energy system uniquely exposed to supply shocks. This piece argues that the Iran conflict has made that choice impossible to defer, and that the case for ASEAN energy sovereignty has never been more convincing.

Why Southeast Asia Was Hit Hardest

The economic effects of the Iran energy shock were global but not evenly distributed. Around 84% of the crude oil and 83% of the LNG that transited the Strait of Hormuz in 2024 were bound for Asian markets. For comparison, Europe's energy mix is much more diversified — only roughly 6% of its crude oil and 5% to 7% of its LNG comes from the Middle East. Asia has no equivalent cushion. The nearest large hydrocarbon producers, including Australia, Russia, and the United States, are geographically distant. When the Strait of Hormuz closed, Asian countries could not redirect and were simply cut off.

This geographic exposure is compounded by an infrastructural problem. Asian refineries have been engineered over decades to process Gulf crude, a specific chemistry of sulphur content, density and viscosity. A refinery built for Gulf heavy crude cannot simply switch to West African light crude without significant retrofitting, requiring years of labour and hundreds of millions of dollars. The region's energy dependency is thus not just a matter of supply but of how its industrial infrastructure has been physically configured around a single source.

The limited fiscal space Southeast Asian governments have meant they are particularly unable to absorb the shock. Most operate with tax-to-GDP ratios of between 10% and 16%, far below the levels that would allow sustained subsidy programmes without crowding out other spending. The countries hit hardest are those least equipped to cushion the blow or fund the structural reforms that would prevent the next one.

This Has Happened Before

The Iran conflict is not Southeast Asia's first energy emergency, and the region's responses so far have followed a familiar structure. ASEAN governments reached for subsidies, price caps, emergency imports and fuel switching — the same tools deployed in previous shocks of 1973, 2008, and most recently in 2022. These instruments can be promptly administered and suppress immediate economic pain. Hence, they are politically the least painful, but avoid the concessions necessary for long-term energy resilience.

Japan and South Korea built strategic reserve systems as a matter of national policy after the 1970s shocks, one that shielded them from the immediate impact of the Iran war. While today Japan imports over 90% of its crude from the Middle East, a higher share than Vietnam, it has not declared a national energy emergency, cancelled domestic flights, or moved to a four-day work week. This is because Japan holds petroleum reserves equivalent to 254 days of consumption, whereas Vietnam holds approximately 15. This gap is a result of strategic and institutional investments made over fifty years prior, when Southeast Asian governments failed to make the same commitments as their East Asian counterparts.

The 2022 Ukraine shock resulted in another collective misstep for ASEAN. Southeast Asian governments responded by investing heavily in LNG import infrastructure, on the premise that locking in supply capacity would provide a buffer against future shocks. With hindsight, this turned out to be the wrong long-term response. The vulnerability in 2022 was price exposure through integrated global markets, rather than an issue of supply shortages. More LNG terminals did nothing to reduce that exposure, instead tying the region more firmly to the geopolitical forces they wanted to hedge against.

Why This Time Could Be Different

There are reasons to be optimistic. The disruption is likely to be long lasting, and likely to only get worse. The world entered the conflict with oil stocks close to ten-year highs, and those reserves have been absorbing the shortfall. Once those buffers are exhausted, prices could rise convulsively. For Southeast Asia, where national reserves average under thirty days of consumption, the exhaustion of global buffers will only add to its problems.

The physical damage to Gulf energy infrastructure adds to the already long timeline of recovery. The Iranian drone strike on QatarEnergy's Ras Laffan facilities in early March forced an immediate shutdown and a force majeure declaration, suspending Qatar from its contractual commitments. Even if fighting was to stop tomorrow, Qatari LNG output would not return to pre-war levels anytime soon.

Together, these factors mean that the conditions required for a return to pre-war energy economics will not be around soon. Whereas previous shocks allowed ASEAN governments to wait for normalisation and then resume business as usual, this one does not offer that exit on any politically relevant timeline.

The ASEAN Power Grid and Why It Is Still Half-Built

The structural solution that analysts have pointed to for three decades is the ASEAN Power Grid, an integrated electricity network connecting all ten member states, allowing surplus renewable energy to flow across borders and reducing individual countries' dependence on imported fossil fuels. Studies show a fully realised grid would cut the region's decarbonisation costs by around 800 billion dollars compared to purely national approaches. The Iran shock has made the national security case for building it impossible to dismiss, and yet the grid remains less than half complete after nearly thirty years.

The obstacles are not primarily technical. Rather, the most fundamental gap has been regulatory. ASEAN member states operate their electricity sectors under different legal frameworks, grid codes, pricing mechanisms and cross-border access rules. A power cable connecting two countries is useless without an agreed framework on how the electricity is governed. Europe built its framework through the European Network of Transmission System Operators, a supranational body with actual regulatory authority. The ASEAN equivalent holds meetings and produces reports but cannot issue legally binding decrees.

Grounds for Cautious Optimism

In 1997, the Asian financial crisis exposed the region's financial architecture as extremely fragile. Out of that experience emerged the Chiang Mai Initiative: a multilateral currency swap arrangement designed to provide a regional safety net that did not depend on the IMF. It was imperfect and took years to negotiate, but it was a collective step in the right direction, and demonstrates the possibility of crafting durable institutions from crisis. The energy equivalent of Chiang Mai has not been built, but the conditions for it are more favourable than ever.

The national security framing of the energy sovereignty argument is also novel in its political potency. Previous iterations of the ASEAN energy cooperation argument were made primarily in the language of climate and development, arguments that governments facing short-term political pressures find easy to defer. The Iran shock has reframed the argument in terms of sovereignty and supply security, which are frames that every government in the region can deploy with its own public regardless of political orientation.

The renewable cost curve is the final evidence for the optimistic scenario. The cost of solar has fallen by around 90% since 2010 and continues to decline. The crossover point at which renewables are cheaper than new gas-fired power has already happened, and governments that build renewable capacity now are locking in a cost advantage that will only increase over time.

Conclusion

Southeast Asia has arrived at this moment not by accident. The vulnerability the Iran shock has exposed was accumulated over decades, through repeatedly choosing the path of least political resistance. The case for ASEAN energy sovereignty for the first time rests not on idealism but economic reality. The cost of repeated crisis management is accumulating faster than the cost of investments that would end the cycle.

The economics on whether ASEAN should invest in energy sovereignty is clear. The only question that remains is whether governments have the political will to bring it about. The good news is that the conditions are more favourable now than at any point in the three decades since the Power Grid was first conceived. The bad news is that ASEAN has absorbed this alarm before and returned to sleep, and will find it easy to do so again. Whether it takes the politically inconvenient but necessary action will be the most consequential energy policy question in the region's history.