The Iran war has exposed major risks for Southeast Asia that could cost the region billions of dollars if it does not diversify sources of energy more quickly, according to an International Energy Agency report released Tuesday. The report said overreliance on oil and gas transported through the Strait of Hormuz left the region particularly vulnerable to shocks from the Iran war, turning a distant conflict into a direct hit on people facing higher energy bills and rising inflation.
Who Pays for the System
The IEA said Southeast Asia’s dependence on imported fossil fuels has left the region exposed to an energy shock that sent governments into what the report described as a state of energy triage. The result has been higher energy bills and rising inflation, with ordinary consumers absorbing the cost of decisions made through centralized energy systems and long supply chains controlled far from the communities that depend on them.
The report warned that unless more sweeping reforms are made, Southeast Asia’s energy import bill could rise to $245 billion by 2035, tripling from $80 billion in 2024. Fatih Birol, the IEA executive director, said, “Diversification of energy sources and supply routes is now a central priority.” The language is bureaucratic, but the pressure is immediate: the region’s energy system is built on dependence, and the bill lands on the public.
What People Are Doing Without Waiting
In the Philippines, which declared a national energy emergency, consumers have turned to rooftop solar at record rates as a quick, do-it-yourself solution to rising utility bills. Ivan Cano of the Manila-based solar company EcoSolutions said, “This is the first time I’ve seen a demand shock of this magnitude.” The IEA found that the Philippines became the second-largest destination for Chinese solar exports in the first quarter of 2026, with imports around three times higher than the same period last year.
That surge in rooftop solar points to a practical response from below: people trying to cut their dependence on utility systems that keep squeezing them. The report also said rising sales of electric vehicles, renewed interest in nuclear power and a boom in rooftop solar and other renewable energy installations show the war is spurring change. But the change is uneven, driven by crisis rather than any clean break from the energy order that created the vulnerability in the first place.
The Apparatus Calls It Reform
The IEA said more sweeping reforms are needed. It recommended reducing overall demand for imported fossil fuels, making national grids more efficient and boosting investment in solar, wind, hydro and geothermal power. It also urged regional energy sharing initiatives like the Association of Southeast Asian Nations Power Grid. Fatih Birol said the wake-up call from this energy crisis will hopefully help neighboring nations overcome the political barriers that have hindered the project.
Sue-Ern Tan, head of the IEA Regional Cooperation Centre in Singapore, said, “This energy shock is prompting not just the short-term responses. But a deeper reassessment of policy priorities and investment strategies by governments.” The report’s own wording makes clear where the decisions sit: with governments, investment strategies and regional power arrangements, not with the people paying the bills.
The conflict has also reinforced the need to rely on coal during times of energy crisis, the IEA said, a likely setback for efforts to phase out dependence on fossil fuels. At the same time, the war is furthering plans for nuclear power in Southeast Asia, though yearslong construction and regulatory processes remain. Indonesia, Vietnam and the Philippines may be the furthest along with nuclear power plans, but their timelines are uncertain.
Electric vehicle sales more than doubled in 2025 to around half a million units, according to the IEA, which found that one in five cars sold regionally is electric. Last month, Laos banned the import of fuel-powered vehicles for the rest of 2026 to cut oil imports and encourage the shift to EVs. Sam Reynolds of the U.S.-based Institute for Energy Economics and Financial Analysis, or IEEFA, said, “The IEA report clearly highlights that Southeast Asia is at a crossroads.” He added that despite the tentative deal to end the Iran war, fossil fuel prices will likely remain high, which means “we will see a push towards more ambitious clean energy deployment.”
The report said, “The Middle East conflict is both a stress test of Southeast Asia’s current energy system and a catalyst to accelerate structural change.”