A potential military conflict with Iran could push global oil prices above $100 a barrel, with devastating consequences for Southeast Asian economies already reeling from the effects of El Niño, according to a new analysis.
Oil price spike scenario
The report, published by the Economist Intelligence Unit (EIU), warns that a disruption to shipping through the Strait of Hormuz—a chokepoint for about 20% of the world's oil—could trigger a price surge not seen since the 2008 financial crisis. Under a worst-case scenario, prices could exceed $120 a barrel for several months.
"The combination of geopolitical tension and climate-induced agricultural stress creates a perfect storm for the region," said John Marrett, an EIU analyst. "Southeast Asia is particularly vulnerable because of its heavy reliance on imported oil and the ongoing impact of El Niño on food production."
Impact on Southeast Asia
The EIU analysis focuses on five countries: Indonesia, Thailand, Vietnam, the Philippines, and Malaysia. Together, they import more than 5 million barrels of oil per day. A sustained price increase to $100 would add at least $50 billion to their annual import bills, worsening trade deficits and putting pressure on currencies.
Indonesia, the region's largest economy, is already facing rice shortages due to drought linked to El Niño. Higher oil prices would increase the cost of fertilizer and transportation, further driving up food prices. The government may be forced to increase fuel subsidies, straining the state budget.
El Niño amplifies risks
The El Niño weather pattern, which typically brings drier conditions to Southeast Asia, has already reduced agricultural output. Rice production in Thailand and Vietnam—two of the world's largest exporters—is expected to drop by 10-15% this year. Higher oil prices would exacerbate the situation by raising the cost of irrigation and farm machinery.
"We are looking at a double shock: energy and food," said Priya Basu, an economist at the Asian Development Bank. "Central banks face a dilemma: raise interest rates to curb inflation or keep them low to support growth. Either way, the poor will bear the brunt."
Global ramifications
The Strait of Hormuz is crucial for global oil supply. Iran has previously threatened to block the strait in response to military action. The EIU estimates that even a partial closure could reduce global oil supply by 5 million barrels per day, pushing prices to $100–$120. A full closure could see prices exceed $150.
Such a spike would likely trigger a global recession, with the International Monetary Fund estimating a 1.5 percentage point reduction in global GDP growth for every $10 increase in oil prices above $80.
Policy responses and outlook
Southeast Asian governments are exploring options to mitigate the impact. Indonesia and Malaysia have considered increasing domestic biofuel production, while Thailand is accelerating its shift to renewable energy. However, these measures take time and cannot offset a sudden price shock.
"The best defense is de-escalation," said Marrett. "But if conflict erupts, the region must be prepared for a prolonged period of high prices and economic hardship." The EIU recommends that countries build strategic oil reserves and expand social safety nets to protect the most vulnerable.
