Asia’s Energy-Starved Nations Go Dark as Hormuz Tensions Drag On

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The satellite imagery broadly coincides with evidence that higher fuel costs have curtailed tourism, transport and other energy-intensive activity, particularly outside major cities where infrastructure is weaker and households have fewer ways to absorb rising costs.

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The ADB cut its GDP growth forecast for developing Asia and the Pacific to 4.9% from 5.1% this year, while raising the inflation outlook to 4.3%, warning that oil may stay well above pre-war levels through 2027 as commodity supply chains will need time to normalize. 

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The International Energy Agency estimates Southeast Asia’s energy import bill will roughly double this year to about $160 billion, as countries continue paying well above pre-war prices for fuel. 

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The war was top of the agenda during a recent gathering of Southeast Asian nations in Manila, with diplomats raising the matter in most if not every meeting on the agenda.

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The ensuing scramble for energy supplies has pushed US partners in Southeast Asia closer to America’s adversaries. Philippine President Ferdinand Marcos Jr. discussed energy security with Vladimir Putin during a summit in Kazan in June, while Indonesia and Thailand have sought deeper energy ties with Moscow as governments look to diversify fuel supplies. 

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Cambodia recently broke ground on a Chinese-backed, nearly $1 billion hydropower project and neighboring Laos is expanding electricity links with Beijing as countries race to strengthen long-term energy security.

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“In this difficult time, we want to make sure that industry continues to grow, at least keep their factory processes going,” Cambodia’s Minister of Mines and Energy Keo Rottanak told Bloomberg during an interview in Phnom Penh. He added that the country’s growing use of renewables has helped blunt the fiscal impact from absorbing higher prices due to the war. “If it were to take longer, we will continue to support our households and our industries as long as it takes.”

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Tourism-dependent parts of the region are also feeling the impact.

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On the Philippine island of Malapascua, where electricity comes from diesel generators, dive resort owner Matt Reed says fuel costs have doubled while bookings have fallen about 25%, forcing him to raise surcharges and consider cutting costs. The Philippine government estimates it could take up to a year for domestic pump prices to return to pre-war levels.

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“We’ve been effectively hit on all sides, from purchases of materials, basic operations of the dive shop, the power in the resort — it’s all costing us significantly more now,” Reed said.

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Governments responded at the outset of the Iran conflict with tax cuts, subsidies and conservation measures as they scrambled to cushion consumers from higher fuel costs. Vietnam reduced flights, China and Thailand tightened refined fuel exports, while the Philippines declared a national energy emergency.

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The strain is already visible in Bangladesh where the conflict has added an estimated $2.5 billion to Bangladesh’s energy import bill, forcing the government to buy spot LNG cargoes at nearly three times benchmark prices. 

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In its industrial centers, construction work has halted on new factories and production activity stalled in existing ones. Corporate offices are also using lights sparingly, while malls and restaurants are required to shut earlier than usual. Villages are absorbing the worst of the nation’s 300-megawatt electricity shortfall, with outages stretching for hours a day in some districts.

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There is a “real possibility” parts of the Asian economy will suffer lasting scars similar to those left by the pandemic if households take on debt and businesses cut jobs or downsize operations, ADB’s Lanzafame said. “This is impacting the potential output that the economy can produce. This isn’t just the effect of a business cycle.”

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For Dara, the ripple effects of a war thousands of miles away are impossible to miss. “When people stop going out, it will affect every kind of business,” he said.

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—With assistance from Arun Devnath, Tooba Khan, Adrian Leung, Shadab Nazmi and Neil Jerome Morales.

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