The escalating conflict in the Middle East is weighing on the Southeast Asian economies amid tensions between Israel and Iran, adding to the economic woes in the ASEAN region which has seen boosted inflationary pressures and heightened uncertainty, analysts said.
Benchmark crude oil prices topped the $90 per barrel threshold on April 5, up nearly $8 a barrel from early March, according to the International Energy Agency.
Tensions have simmered in the region since the Gaza conflict broke out on Oct 7. The situation worsened after Israel bombed an Iranian diplomatic building in Syria on April 1 and Iran launched retaliatory strikes on Israel on April 13.
The ongoing tensions in the Middle East threaten to halt — or even reverse — some of the recent progress made in tackling global inflation, the World Bank said last week.
The World Bank estimated that a “moderate conflict-related supply disruption” could raise the average cost of a barrel of Brent crude oil to $92 per barrel.
The worst-case scenario would see global inflation rising by nearly one percentage point this year, it said.
Experts say high oil prices combined with the resilience of the US dollar against Southeast Asian currencies will boost consumer prices, increase interest rates, and dampen business sentiment.
Dio Herdiawan Tobing, head of public policy for Asia at the Amsterdam-based World Benchmarking Alliance, said higher oil prices are hurting member states of the Association of Southeast Asian Nations as they import at least 50 percent of their crude oil requirements from the Middle East.
He said rising oil prices serve as “a crucial reminder” for ASEAN to boost its development of renewable energy, which could reduce the region’s vulnerability to geopolitical tensions around crude oil.
Josua Pardede, chief economist at Permata Bank in Jakarta, Indonesia, said oil-importing countries like Indonesia may experience increased import-related inflation pressure.
David Gibson-Moore, president and CEO of Gulf Analytica, a business consultancy to international firms and family offices in Dubai, said increased hostilities in the Middle East “would likely push oil prices beyond the critical $100 per barrel mark”.
Pardede said: “Capital outflows from Indonesia’s stock and bond markets are feared to increase” after the tensions between Iran and Israel.
Currency depreciation
Bank Indonesia, the country’s central bank, stepped in when the rupiah fell to 16,108 against the US dollar on April 16 — its weakest level since April 2020.
The Thai central bank has kept interest rates unchanged. On April 24, Bank of Thailand Assistant Governor Piti Disyatat said the bank has intervened in currency markets to ease any excessive moves in the baht, Reuters reported.
The Malaysian ringgit continues to struggle after falling to a 26-year-low of 4.8053 against the greenback in February.
Prime Minister Anwar Ibrahim said the government “will take appropriate actions to promote continued financial stability and orderly functioning of markets while also being concerned about the potential economic fallout from the current situation that may impact the people of Malaysia”.
Agencies contributed to this story.
Leonardus Jegho
in Jakarta contributed to this story.