ASEAN+3 faces its biggest energy shock since 2022, but from a position of strength and with greater urgency to accelerate energy transition.
The US–Israel military operation against Iran that began on 28 February 2026 has triggered the most significant disruption to global energy markets since 2022. At the time of writing, the Strait of Hormuz – through which roughly a fifth of global oil and liquefied natural gas (LNG) trade normally flows – has been effectively closed to commercial shipping. Oil prices have surged well above pre-conflict levels and remain elevated and volatile.
For ASEAN+3, which sources over a third of its oil and gas from the Middle East, the exposure is direct. The risks – higher energy import bills, pass-through to inflation, and potentially tighter financial conditions – should not be understated.
Based on AMRO’s internal estimates, if oil prices remain elevated at around USD 90 per barrel for the remainder of the year, inflation in the region could increase by an additional 0.7 percentage points, and growth reduced by 0.2 percentage points.
But this is not the 1970s. Nor even 2022. ASEAN+3 enters this episode from a position of strength – in its macroeconomic conditions, the policy space available to respond, and in how the structure of its economies has changed.
Entering from strength
The region’s macroeconomic starting point is solid. ASEAN+3 grew an estimated 4.3 percent in 2025 – a firm expansion that came despite the most significant shift in US trade policy in decades. Regional inflation stood at just 0.9 percent, well below its long-run average.
This low-inflation starting point is an important buffer. It gives central banks and fiscal authorities greater room to absorb a supply-driven price shock without being forced into growth-damaging policy tightening.
Strategic petroleum reserves add a further layer of near-term resilience. China, Japan and Korea hold substantial emergency petroleum reserves, while oil stockpiling arrangements across ASEAN have become more common. These buffers cannot prevent price spikes, but they reduce the risk of immediate physical shortages and buy policymakers time for a more orderly response.
In the near term, the priority for monetary policy would be to maintain orderly market conditions rather than tightening prematurely in response to supply shock. At the same time, central banks will need to stay alert. Should inflationary pressures broaden beyond energy prices and become more entrenched, a policy response would be warranted.
On the fiscal side, intervention is best targeted at vulnerable segments through transparent, time-bound measures, rather than broad-based subsidies that distort price signals and erode the fiscal space that may be needed if the conflict deepens. Policymakers should also watch developments beyond headline energy prices: disruptions to shipping and logistics may signal broader economic effects ahead.
A structurally different region
Beyond the cyclical position and available policy options, there is a deeper reason for cautious confidence: the structure of ASEAN+3 economies has changed in ways that make them materially less vulnerable to oil price shocks than they were a generation ago.
The shift begins with energy intensity. Across ASEAN+3, the amount of energy required to produce a unit of GDP has fallen by 20 to 30 percent since 2000. Each dollar of output is less exposed to energy price movements than it was two decades ago. This weakens the core transmission channel from oil price to GDP, but it is only the first layer.
The second is electricity generation. Across the region, power systems have diversified substantially. China’s non-fossil share of installed power capacity reached more than 50 percent by 2024. In Japan, the non-fossil share of electricity generation has risen to over 30 percent. In ASEAN, renewables account for roughly a third of installed power capacity.
On a whole-economy basis, renewable energy still accounts for only around 10 percent of ASEAN+3’s total energy consumption on average. There remains a gap between installed capacity and actual consumption, but the direction of progress is meaningful.
The third shift is in transport, traditionally the main channel through which oil price shocks pass through to consumers. Electric vehicle adoption has risen dramatically. In China, nearly six in ten new cars sold in 2025 were electric, and across the rest of the region EV sales grew by more than 60 percent between 2022 and 2024. This structural shift was not present during earlier oil price episodes.
Taken together – lower energy intensity, a more diversified power mix, and the early stages of transport electrification – these developments represent a meaningful reduction in the region’s economy-wide exposure to oil price shocks.
The job is not done
These structural shifts are real. But they are incomplete, and the current conflict has exposed the fault lines that remain.
Fossil fuels still dominate total primary energy consumption across much of the region. Cross-border grid interconnection in ASEAN remains at an early stage. And unlike oil, buffers for LNG remain limited – a gap that the closure of the Strait of Hormuz, which has removed a fifth of global LNG supply, has made clear.
A prolonged conflict would still mean sustained higher energy costs and difficult policy trade-offs for the region. Nothing in the structural improvements described above eliminates that reality.
But the region confronting this shock is materially different from the one that faced earlier episodes – more energy-efficient, more diversified in its power sources, less oil-dependent in its transport sector.
The more important point, though, is forward-looking. This episode is a powerful reminder that the energy transition is not only an environmental imperative but also a macroeconomic resilience imperative. ASEAN+3 has already begun moving in this direction. The case for accelerating that transition is now considerably stronger.