The price spikes in global energy markets due to the US-Iran war have stretched Southeast Asia's fossil fuel subsidy provisions to breaking point, the Institute for Energy Economics and Financial Analysis warned on Monday.
Following the closure of the Strait of Hormuz in early March, more than 80% of Asia-bound fuel cargoes were halted, forcing regional governments to limit retail pump prices by reducing their taxation component.
That prompted a wave of unsustainable fiscal outlays, rapidly draining dedicated state stabilization funds and placing pressure on national budgets, according to IEEFA analyst Shu Xuan Tan.
The region's vulnerability to energy price shocks stems from a deep, unhedged reliance on Middle Eastern imports paired with a lack of strategic reserves in the form of stored crude oil and products.
IEEFA noted that in 2024 fossil fuel subsidies across the region reached a massive $353.1 billion accounting for roughly 8.1% of Southeast Asia's collective gross domestic product.
This total comprised $55.9 billion in explicit pricing and producer supports alongside $297.2 billion in implicit subsidies, it said.
Five core economies, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines, carry the bulk of this exposure, commanding 97% of the region's explicit subsidies.
Because these emerging economies typically maintain weaker fiscal buffers and hold strategic reserves below a 30-day supply, the prolonged global oil crunch has left them vulnerable to external macroeconomic shocks, IEEFA noted.
The think tank advised governments to dismantle costly, regressive universal fuel subsidies, replacing them with flexible, card-based pricing models and targeted cash transfers to protect only the most vulnerable populations.
The report calls for a rapid acceleration of transport electrification via direct consumer EV purchase incentives and investments in public transport to cut fossil fuel import bills and reinforce regional energy security.