April 15, 2026

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The Spillover Effects of the Iran War on Asia

AP Photo/Manish Swarup

Asia is experiencing shocks and reverberations across multiple economic sectors as a result of the U.S.-Israel vs. Iran war. The negative spillover effects are apparent across energy, food, and labor sectors in South and Southeast Asia. The energy crisis is also affecting parts of East Asia. Should the ceasefire break down after the failure of the talks in Islamabad, and if the Strait of Hormuz remains closed, there is an increasing risk that large parts of Asia could face an economic recession.

Most dire has been the Philippines, which sources 90 percent of its oil from the Middle East. President Ferdinand Marcos Jr. declared a state of national emergency on March 24, with the Department of Energy asserting that the country had only enough gas in its reserves for 53 days, diesel for 46 days, and jet fuel for 39 days, according to Sui-Lee Wee of the New York Times. Vietnam, which sources 85 percent of its oil from Kuwait, has only enough supply to meet demand through the end of April. Pakistan is also highly vulnerable, as Islamabad imports 99 percent of its liquid natural gas (LNG) from the United Arab Emirates (UAE) and 40 percent of its energy from the Gulf region overall.

Food insecurity also represents a real threat. According to Bloomberg, Cambodian, Thai, Filipino, and Vietnamese farmers are struggling due to shortages of fertilizer and the high price of diesel that is required to operate irrigators, rice planters, and tractors. The higher cost of these inputs, combined with low profit margins, may lead farmers to plant less rice this year or perhaps not plant a crop at all. This could lead to rising poverty in rural areas at a time when the affected countries are also facing the dual crunch of an energy crisis.

While South Korea and Japan have larger strategic oil reserves, which can provide a temporary cushion, both are vulnerable to a prolonged conflict, as they import between 70 and 95 percent of their oil, respectively, from the Gulf. As oil producers, Indonesia and Malaysia have been comparatively less affected than other countries in the region; both have committed, at least for the time being, to relying on subsidies to buffer the shocks. Moreover, as Malaysia is Iran’s closest ally in the region, with the largest Persian diaspora in Southeast Asia and extensive political, economic, and social ties, Kuala Lumpur has condemned U.S. and Israeli actions toward Iran more stridently than other Association of Southeast Asian Nations (ASEAN) countries. In turn, Iran has permitted Malaysian ships to cross the Strait of Hormuz.

The U.S.-Israel vs. Iran war also affects labor migration in the region. Every year, millions of Pakistanis, Bangladeshis, and Filipinos, and hundreds of thousands of Indonesians and Thais, seek employment opportunities in the Middle East. Dr. Shujaat Faruq, Professor of Economics at the Pakistan Institute of Development Economics, estimates that approximately six million Pakistanis work abroad in the Gulf countries, while Bangladesh’s Ministry of Expatriates’ Welfare and Overseas Employment conservatively estimates that over five million of its citizens work in the Gulf. According to the Philippine Department of Foreign Affairs, approximately 2,443,700 Filipinos work in the Middle East, mostly in Saudi Arabia and the United Arab Emirates. All three countries rely on remittances as a percentage of GDP, with the Philippines the most affected. The Philippine Central Bank estimates that remittances from the region account for 18 percent of the Philippine economy; for Pakistan and Bangladesh, the figure is between five and nine percent.

Across Asia, countries are undertaking austerity measures to address the crisis. Vietnam, South Korea, Bangladesh, and Thailand have begun energy rationing. Indonesia, Vietnam, South Korea, Malaysia, Bangladesh, and Thailand have implemented work-from-home requirements either for civil servants or for the general population. Government officials in the Philippines and Pakistan have switched to a four-day work week. Four South Korean airlines — Korean Air, Asiana Airlines, Air Busan, and Tway Airlines — have entered emergency management status, while Seoul has urged its citizens to conserve energy, such as by riding bikes for short trips. Japan is tapping into its energy reserves.

The fuel shortage has affected sectors one might typically not expect. Dr. Sana Jaffrey, Research Fellow and Lecturer in the Department of Political and Social Change at the Australian National University, notes that Bangladesh has been forced to close its universities, and Pakistan has been forced to close its schools to save energy.

Who benefits from Asia’s energy crisis? China is in a unique position in the region due to its domestic diversification program and substantial investments in renewable energy. China already sources 50 percent of its electricity from renewable energy. Thus, Beijing is far less vulnerable than any of its neighbors to the disruptive impacts of the energy crisis. Instead, this moment could prove a unique opportunity for China to expand its reach into Southeast Asian energy markets by assisting the region in developing its own renewable energy sector. ASEAN has already committed to expanding its renewable energy sector, setting a target of 45 percent renewable energy by 2030.

David Hutt, a Southeast Asian columnist at The Diplomat, notes that prior to the war, China had already been investing in hydropower dams, solar farms, and factories producing electric vehicles, solar panels, and batteries in mainland Southeast Asian countries. China is also a key investor and supplier of technology for the ASEAN Power Grid project. However, Iran’s closure of the Strait of Hormuz and its spillover effects on the region’s energy markets have highlighted the imperative of making that shift successfully. With the United States preoccupied by the war with Iran — largely creating the very energy crisis that Southeast Asia now faces — China can position itself as a responsible alternative to an unstable and unreliable United States. Moreover, as the United States moves away from renewables to double down on fossil fuel production, China can step into the breach.

Julie Chernov Hwang, PhD is an associate professor of political science and international relations at Goucher College, a Senior Research Fellow at the Soufan Center, and a Harry Frank Guggenheim Distinguished Scholar.