ASEAN braces itself for economic fallout from Mid-East crisis, warns of ‘prolonged instability’

MANILA – ASEAN economic ministers on March 13 warned that prolonged geopolitical instability from the escalating conflict in the Middle East could threaten economic security across South-east Asia, disrupt supply chains and hinder the region’s growth.

“A prolonged period of geopolitical instability could pose sustained challenges to the global economic outlook, which has already been battered by multiple headwinds in recent years,” read a joint statement issued after the ASEAN Economic Ministers’ Retreat held in Manila.

“It will also impact economic security and stability and the livelihoods of millions of people in the region, and hinder economic progress in ASEAN,” added the economic ministers, who were hosted by the Philippines as chair of the regional grouping in 2026.

Their warning comes as tensions in the Middle East have risen sharply following the US-Israeli strike on Iran at the end of February, which has triggered retaliatory attacks across the region and raised fears of a wider conflict.

The violence has already pushed global oil prices higher and threatened key shipping routes linking Asia with Europe and the Gulf.

The ASEAN economic ministers pledged to work together more closely, and to keep ASEAN markets open for trade and investment “by maintaining a transparent and predictable regional economic architecture”.

They echoed the March 4 statement of ASEAN foreign ministers calling for de-escalation of the conflict through diplomatic and peaceful means.

“We reaffirmed that long-term regional economic predictability and investor confidence, which are inextricably linked to the consistent application of international law and the swift resolution of humanitarian crises, remain the foundation of a stable global trading architecture,” the economic ministers said.

They said they remain “steadfast” in advancing key regional initiatives, including upgrading the ASEAN Trade in Goods Agreement and signing the ASEAN Digital Economy Framework Agreement to accelerate regional digital trade.

Economists say the conflict could ripple across ASEAN economies through multiple channels beyond oil prices.

“The Middle East conflict threatens to unleash a stagflationary shock on the global economy and ASEAN,” Maybank economist Brian Lee told The Straits Times.

Stagflation occurs when there is high inflation, high unemployment and stagnant economic growth.

He noted that the Gulf region is a major producer of not only oil and gas, but also key industrial commodities such as fertiliser, sulphur, plastics, aluminium and helium, which feed directly into transport, petrochemical, construction and agricultural supply chains.

A prolonged closure of the Strait of Hormuz, a vital maritime chokepoint linking the Gulf to global markets, could therefore trigger widespread supply disruptions.

“For governments that subsidise fuel prices, keeping fuel prices unchanged in the midst of surging oil prices will pressure their fiscal balances… ASEAN countries generally have relatively limited fuel reserves to cushion the impact of a fuel price shock,” Mr Lee said.

ASEAN’s scheduled meetings and summits in 2026 have now become even more crucial platforms for member states to coordinate responses and avoid trade restrictions that could worsen regional supply shortages, said Assistant Professor J.C. Punongbayan from the University of the Philippines-Diliman School of Economics.

“Since some member countries are exporters, some are importers (of oil), if we can kind of help one another in these challenging times, ASEAN will be quite crucial in that,” he told ST.

Economic ministers attending the 32nd ASEAN Economic Ministers’ Retreat and Related Meetings in Manila on March 13.

PHOTO: AFP

However, he warned that prolonged uncertainty could tempt countries to adopt protectionist policies to safeguard domestic supplies.

“There could be a temptation for some countries to restrict exports, especially if there is a huge cloud of uncertainty about how long the crisis will last,” he said.

In their joint statement, the ASEAN economic ministers highlighted the region’s vulnerability to global energy market shocks, noting the grouping’s reliance on international oil and liquefied natural gas supply routes.

They pushed for the grouping to diversify energy sources and accelerate investment in renewable energy and other alternatives, as well as to advance existing energy cooperation frameworks, including on petroleum security and a regional power grid.

Prof Punongbayan said the crisis could serve as a catalyst for ASEAN governments to accelerate the transition towards cleaner energy.

“Maybe this is also a wake-up call for ASEAN in terms of accelerating policies towards energy transition and the move towards renewables,” he said.

Still, rising oil prices could strain the fiscal and external balances of many South-east Asian economies, Maybank’s Mr Lee said.

Most ASEAN countries are net energy importers, making them vulnerable to sustained spikes in oil and gas prices.

Thailand, Singapore and the Philippines are among the region’s largest net energy importers relative to the size of their economies, while Malaysia stands out as a net oil and gas exporter that could benefit from higher prices.

Indonesia is also a net energy importer, although higher global prices for commodities such as coal and palm oil could partly cushion the impact on its external balance.

Higher energy costs could also complicate economic policymaking across the region.

Fuel and utility costs account for a significant share of household spending in several ASEAN countries, meaning a prolonged Middle East conflict could trigger broader inflationary pressures.

“The inflation shock will cascade beyond energy in a prolonged Middle East war to food and other goods whose supply chains are disrupted by the Hormuz chokehold,” said Mr Lee.

Apart from the conflict, ASEAN’s economic ministers also expressed concern over prolonged global trade uncertainties, adding that they will monitor the recently launched Section 301 investigations by the US, which affect most of the grouping’s members.

They added that they will “engage proactively to ensure that the investigation is consistent with international trade rules”.

Singapore’s Deputy Prime Minister and Minister for Trade and Industry Gan Kim Yong said in a Facebook post on March 13 that he met Philippine President Ferdinand Marcos Jr for the first time on the sidelines of the retreat.

He said they exchanged views on recent international developments and agreed on the importance of strengthening ASEAN integration and maintaining stability in the region.

Singapore supports the Philippines’ priorities for its chairmanship year, including harnessing artificial intelligence and promoting greater intra-ASEAN trade, he added.

Separately, Philippine Foreign Secretary Theresa Lazaro called for a special online meeting among her ASEAN counterparts on the same day to discuss the implications of the conflict.

Ms Lazaro said the foreign ministers are coordinating closely with their economic counterparts to address the broader spillover effects of the crisis.

She said ASEAN plans to utilise existing mechanisms to mitigate the impact of the conflict, including the ASEAN Framework Agreement on Petroleum Security (APSA), the ASEAN Power Grid (APG) and the Trans-ASEAN Gas Pipeline (TAGP).

The APSA allows voluntary petroleum sharing and mutual assistance to member states facing supply shortages, while the APG outlines a long-term plan to connect electricity networks across ASEAN to an integrated regional grid. The TAGP facilitates the transportation of natural gas across South-east Asia.

Ms Lazaro added that ASEAN’s repatriation efforts for nationals in the Middle East are already under way, although ongoing missile attacks and bombardments have complicated evacuation plans.

Singapore’s Minister for Foreign Affairs Vivian Balakrishnan expressed support for the Philippines’ efforts to forge a regional response, as well as Singapore’s concern over the situation in the Middle East, which has impacted the lives and safety of civilians, including many ASEAN nationals, according to a statement from the Ministry of Foreign Affairs.

The ministry said Singapore will continue to monitor developments closely and work with its ASEAN partners to assist Singaporeans and other ASEAN nationals affected by the conflict.

Thai Foreign Minister Sihasak Phuangketkeow told reporters in a separate press briefing on March 13 that ASEAN has been able to demonstrate its relevance amid the crisis.

Mr Sihasak cited how Singapore chartered an aircraft to evacuate not only its own citizens but also nationals from other ASEAN member nations out of Riyadh on March 12.

“One area where cooperation is ongoing is consular cooperation, helping ASEAN nationals in distress in the region.

“Some of us don’t have embassies in certain countries. Those who have (embassies have been) offering to help (or) assist the nationals of other ASEAN countries,” he said.

ASEAN countries have also been engaging Gulf states bilaterally and discussing the crisis through international forums such as the UN.

Additional reporting by May Wong