Southeast Asia faces soaring energy import costs after Iran war
The IEA says reliance on oil and gas shipped through Hormuz could push the region’s import bill to $245 billion by 2035 without faster diversification.
By Sofia Marchetti · World Affairs Correspondent
3 min read
The Iran war has laid bare Southeast Asia’s exposure to energy supply shocks, the International Energy Agency said Tuesday. The agency warned that the region’s fuel import bill could climb to $245 billion by 2035, up from $80 billion in 2024, unless governments move faster to reduce dependence on imported fossil fuels.
The IEA said Southeast Asia relies heavily on oil and gas that moves through the Strait of Hormuz, making the region vulnerable when conflict threatens Middle East shipping routes. The report described the war as a severe test for energy security and said governments are reassessing policy and investment plans.
Fatih Birol, the IEA’s executive director, said diversification of energy sources and supply routes has become a central priority. Sue-Ern Tan, who heads the IEA Regional Cooperation Centre in Singapore, said the shock has triggered short-term responses and a broader review of government priorities.
Higher bills and a push for alternatives
The IEA said the energy shock drove up energy costs and fed inflation across Southeast Asia. The agency also said the crisis has reinforced coal’s role as a fallback fuel during shortages, complicating efforts to cut fossil fuel use.
At the same time, the IEA said the conflict has helped speed interest in cleaner and more diverse energy options. The report pointed to rising electric vehicle sales, growth in rooftop solar and other renewable installations, and renewed attention to nuclear power.
Nuclear plans are advancing in parts of the region, according to the IEA, but development remains constrained by long construction schedules and regulatory work. The agency said Indonesia, Vietnam and the Philippines appear among the furthest along, though their nuclear timelines remain unclear.
Solar and electric vehicles gain ground
In the Philippines, where the government declared a national energy emergency, consumers have adopted rooftop solar at record rates, according to the IEA and the Associated Press. Ivan Cano of Manila-based EcoSolutions said he had not seen a demand shock of that scale before.
The IEA said the Philippines became the second-largest destination for Chinese solar exports in the first quarter of 2026. The agency found that those imports were about three times higher than in the same period a year earlier.
Transportation is also changing, according to the IEA. Electric vehicle sales in Southeast Asia more than doubled in 2025 to about 500,000 units, and the agency said one in five cars sold in the region is electric.
Laos has moved to curb oil demand as well, according to the report. The country banned imports of fuel-powered vehicles for the rest of 2026 to reduce oil imports and encourage electric vehicle adoption.
Grid upgrades and regional power sharing
The IEA said Southeast Asia’s main task is to cut demand for imported fossil fuels. The agency recommended more efficient national grids and higher investment in renewable sources including solar, wind, hydropower and geothermal energy.
The IEA also urged governments to prioritize regional power-sharing plans, including the Association of Southeast Asian Nations Power Grid. Birol said the current crisis could help neighboring countries address political obstacles that have slowed the project.
Sam Reynolds of the Institute for Energy Economics and Financial Analysis said the IEA report shows Southeast Asia at a crossroads. He said that despite a tentative deal to end the Iran war, fossil fuel prices are likely to remain high, supporting a push for more ambitious clean energy deployment.
This story draws on original reporting from Fortune.