Gulf Disruption Forces Southeast Asia to Confront Its Fossil Fuel Dependence
With Hormuz-driven inflation cutting through Asian factories and households, civil society groups are demanding a shift to domestically-sourced renewable power.
The cost of Southeast Asia's dependence on imported fossil fuels has arrived in the form of shuttered factories and food inflation. A surge in global fuel prices following disruptions around the Strait of Hormuz has exposed how much of the region's power and transport still runs on imported coal, oil and LNG from the Persian Gulf.5,4
In the Philippines, inflation jumped to 7.2% in the year to April 2026 and GDP growth slowed to 2.8% in the first quarter of 2026, the lowest reading since the pandemic. In Bangladesh, textile factories — accounting for roughly 13% of GDP — reported input costs up 10-15% on costlier diesel and petrochemical-based dyes, with overall factory output down 30-40% according to an industry body. The United Nations estimated a prolonged conflict could shave up to 3.6% from South Asian GDP; food-price inflation in India, Pakistan and Sri Lanka this year could exceed 10%, according to the Kiel Institute.4
Regional civil society groups have sharpened a response: they are calling on governments to pivot from energy security to energy sovereignty. The two concepts differ in ways that matter to traders. Energy security is about guaranteeing supply — through contracts, reserves and diversified suppliers. Energy sovereignty means meeting power and fuel needs from domestically-generated renewable energy, so that Hormuz or Malacca disruptions become, at worst, a diplomatic problem rather than a supply crisis.6
The case for the shift is structural, not rhetorical. A country importing LNG at JKM, which stood at $15.52 per MMBtu as of Friday's (2026-06-27) close, is exposed every time Persian Gulf transit routes become contested. A country drawing on domestic wind and solar, networked across a regional grid, is not.5
The timing complicates the pivot. Power demand across Southeast Asia from data centres, electric vehicles and green industrial parks is expected to increase more than threefold to over 100 terawatt-hours in the next three to four years, according to the 2026 Southeast Asia Green Economy Report published by Bain & Company and Standard Chartered. Investments exceeding $200 billion will be needed, with more than half expected to flow into data centres.1,2
The region's track record on getting renewable projects built is poor. Cancellation rates for renewable energy projects in Vietnam, Thailand and Indonesia ran at 50-60% over the past five years, driven by regulatory uncertainty, permitting delays and grid capacity constraints, the Bain-Standard Chartered report found. Only around 60% of the $540 billion in announced green investments across power and EV supply chains is considered likely to proceed under current conditions.2
Analysts are cautious about a structural shift taking hold. Alnie Demoral, Southeast Asia analyst at a global energy policy firm, said in May (2026-05-19) that the observed pivot toward Australian and Qatari LNG cargoes represents a short-term procurement response rather than a long-term direction. The region's coal plants are running harder, not winding down, as governments scramble to stabilise supply.5
Indonesia has signalled that the Hormuz shock is forcing broader reassessment. President Prabowo Subianto raised in a televised cabinet meeting in early April (2026-04-08) the idea of charging transit fees through the Strait of Malacca, referencing Hormuz directly. The proposal has not advanced, but its emergence illustrates how the Gulf conflict is prompting ASEAN governments to reconsider what leverage their own geography provides.3
The civil society groups pressing the sovereignty argument are not opposed to gas as a transition fuel. Their position is that the next decade of investment decisions will lock in the region's energy structure for decades, and a portfolio built on imported fossil fuels guarantees continued exposure to maritime chokepoints. Cutting the 50-60% renewable project cancellation rate through regulatory reform is, in their view, the immediate lever — more consequential than financing commitments from multilateral development banks.6,2
Whether the Hormuz shock proves durable enough to shift government behaviour, or fades into a policy footnote once supply normalises, will be visible in the project approval numbers from Indonesia, Vietnam and Thailand over the next twelve months.5