Southeast Asia is a very dynamic region that is set to be a major driver of global energy demand growth, but the Middle East conflict has provided a stark wake-up call for the region’s energy system. Southeast Asia accounts for 9% of the world’s population and 4% of its GDP, but nearly 20% of global energy demand growth to 2035 under today’s policy settings. The disruption in global fuel markets has exposed deep structural vulnerabilities linked to import dependence, limited diversification and concentrated supply routes. Before the crisis, around 60% of Southeast Asia’s imports of crude oil and a third of its imports of gas were coming from the Middle East, while 45% of its oil product supply were dependent on Middle Eastern crude. The resulting price shock is already feeding through to higher energy bills, inflation and mounting economic risk. The crisis is prompting a reassessment of policy and investment strategies amid a strong prioritisation of energy security. The exploratory scenarios included in this new Outlook, which reflect pre-crisis policy settings, show that the direction of travel for the region’s energy sector does not adequately address the risks it now faces. A robust, collective response is required.

For the moment, governments are focused on managing the short-term energy impacts of the crisis. Measures include demand-restraint (such as promoting public transport and remote working), emergency interventions including price controls and subsidies, and efforts to secure alternative fuel supplies. Price controls and subsidies provide some protection for consumers but come at significant fiscal cost – especially when untargeted – and complicate market adjustments to the disruption. Fossil fuel subsidies in the region were around USD 40 billion prior to the crisis and are set to rise sharply in 2026. Looking further ahead, without structural change, the region’s energy import bill could rise sharply from over USD 80 billion in 2024 to around USD 245 billion by 2035, further increasing exposure to global price volatility. By contrast, if the region were to reach its announced climate pledges, the fossil fuel import bill in 2035 would be around half this level. The challenge is therefore not only to manage the near-term impacts of the crisis, but also to accelerate the structural changes needed to reduce exposure to future shocks.

Immediate impacts have been felt most acutely in refining, petrochemicals, power generation and cooking fuels. Disruptions have led to shortages of key products, particularly naphtha, a critical petrochemical feedstock, and liquefied petroleum gas (LPG), a cooking fuel used by three-quarters of the region’s population. Many Southeast Asian refineries are configured to process medium and heavy Gulf crudes, and the loss of these supplies has reduced operational flexibility, lowering utilisation rates and, in some cases, output. This dual reliance – on imported refined products and relatively inflexible refining configurations – is a structural weakness in the region’s energy system and is already affecting downstream manufacturing, transmitting shocks through global supply chains. The loss of supplies from key Middle Eastern exporters has also tightened global liquefied natural gas (LNG) markets, increasing the cost of gas-fired generation and prompting fuel switching, including towards coal. These pressures are exposing the risks associated with import dependence and concentrated supply chains, including the growing reliance on LNG: gas use in the power sector is projected to rise by over 60% under today’s policy settings even as domestic supply declines by one-third to 2050. The crisis may therefore spur efforts to diversify energy sources and buttress domestic supply in producing countries such as Indonesia, Malaysia and Thailand.

A stronger and more co-ordinated regional response will be essential to address these challenges. Enhanced cooperation across Southeast Asia can improve resilience, reduce costs and deliver shared benefits. In fuel markets, this includes opportunities to strengthen collective security through coordinated stockholding and emergency response arrangements. In power systems, expanding cross-border connections through the ASEAN Power Grid can help balance supply and demand, integrate renewable resources and improve system flexibility, lowering costs for all participating countries. Recent developments have also highlighted the importance of regional initiatives such as POWERR Asia, which can enhance collective preparedness and mitigate cascading disruptions across interconnected energy and industry systems.

Diversification is now a central priority for Southeast Asia, with clean energy, electrification and efficiency as key levers to reduce import exposure and strengthen resilience. Since 2015, investment in renewables, electrification and efficiency has already tempered growth in fossil fuel import requirements, saving the region around USD 30 billion in import costs in 2025. The crisis is reinforcing the attraction of renewables that can be developed cost-effectively at home, while aligning with longer-term transition pathways. Renewable capacity stood at 120 GW in 2024 and is projected to nearly triple by 2035 under today’s policy settings or grow fivefold if announced targets are achieved. Early signs of additional momentum are visible in solar deployment: 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 in 2025. While large-scale projects take time to materialise, these developments signal a broader reorientation of energy strategies underway. Alongside renewables, greater use of domestic resources – including hydropower, geothermal and existing fossil fuel production – can also support diversification.

Nuclear power remains a longer-term diversification option in Southeast Asia, but its role will depend on accelerating deployment and overcoming long lead times. Non-fossil fuel baseload sources already play an important role in the region’s power systems but remain unevenly distributed. Hydropower already supplies a significant share of electricity generation – reaching as high as 75% in Lao PDR, which also exports power to neighbouring systems – and remains central to system stability. Geothermal capacity, concentrated in Indonesia and the Philippines, is also set to expand, more than doubling over the next decade under today’s policy settings. The most advanced nuclear plans are in Indonesia, Viet Nam and the Philippines, where governments are actively exploring deployment pathways and international partnerships, although timelines remain long and uncertain. Nuclear deployment could meet almost 10% of electricity demand growth to 2050 if announced targets are achieved.

Coal is widely available in Southeast Asia and continues to play an important role in the energy system; it could see some upside from the renewed focus on energy security. Coal accounts for around half of electricity generation, reflecting its availability and established role in supporting system adequacy. Indonesia is the dominant player in the regional coal market, accounting for nearly 90% of production and close to half of demand, while Viet Nam, Thailand and the Philippines also produce smaller amounts for domestic use. Across scenarios, the region’s relatively young coal fleet continues to provide flexibility and back-up capacity, including during supply disruptions such as the recent crisis, but it increasingly operates at lower utilisation rates as other sources expand. At the same time, coal use entails broader risks, including high levels of air pollution – which contributed to an estimated 330 000 premature deaths in 2024 – and emissions that are incompatible with achieving long-term climate targets. 

Alongside supply-side measures, energy efficiency is a cost-effective way to strengthen resilience in response to the crisis and in the longer term. Governments have already turned to demand-side measures to rapidly reduce fuel use in response to the crisis, but these are increasingly being accompanied by structural measures – like building codes and the electrification of transport – to moderate future energy demand growth. There are huge opportunities for effective action: tighter performance standards for air conditioners – with stocks set to triple by 2035 – have already improved the efficiency of the average residential AC unit by around 40% since 2015. Implementing fuel economy standards for trucks could also play a major role in curbing road freight demand as the fleet expands by around 50% by 2050. There remains substantial untapped potential to further increase efficiency actions across the region in support of both short- and long-term policy goals.

Electricity is becoming ever more important to Southeast Asia’s energy future – electricity demand is already growing twice as fast as overall energy use. Electricity makes up almost a quarter of total final consumption today and rises rapidly to 2050 across all scenarios: over the next decade alone, demand increases by an amount equivalent to Japan’s total electricity generation today. Among established uses, cooling demand in buildings is the fastest growing, with the stock of residential air conditioners set to triple by 2035. Rapid growth in data centres is also creating new sources of electricity demand in several countries, reinforcing the need for timely investment in generation, grids and system flexibility. In industry, the electrification rate is already at a level comparable to that of the European Union.

New uses of electricity are expanding and the shift to electric mobility, as well as bioenergy and low-emission transport fuels, could accelerate further in response to the crisis. Electric vehicle (EV) sales more than doubled in 2025 to around half a million units, representing nearly 20% of sales. Fuel price spikes have prompted countries such as Viet Nam to expand EV incentives, highlighting the role of electrification in improving resilience. Southeast Asia also has the world’s largest two- and three-wheeler fleet, with the electric share of sales projected to reach nearly 60% by 2035 under today’s policy settings. Despite this momentum, oil demand in transport is still set to increase by 20% to 2035. Beyond electricity, bioenergy also plays a growing role in transport: biofuel blending already meets around 10% of road transport fuel demand – second only to Central and South America – and rises to around 15% by 2050. Singapore’s position as the world’s largest bunkering hub supports early adoption of alternative maritime fuels such as ammonia and methanol.

The outlook for electricity supply and emissions is increasingly shaped by the pace at which renewables and other sources of low-emissions power can be scaled up. Eight countries have economy-wide net zero targets including the region’s largest power systems – Viet Nam and Indonesia. Both have mapped out long-term pathways in their national power plans to expand low-emissions generation, positioning them as key drivers of regional change. Wind and solar PV are at the forefront of this expansion, with several countries moving towards competitive procurement mechanisms: in 2025, almost 19 GW of renewable energy capacity were awarded through auctions. If announced targets are achieved, low-emissions sources provide around 50% of generation in 2035 and 90% in 2050. Coal and gas-fired power plants continue to play a role in all scenarios – supplying bulk electricity under scenarios based on current and stated policies, while pivoting more quickly to flexible operation under announced pledges.

Delivering this transition depends on an efficient build-out and use of enabling infrastructure, particularly grids and storage. Transmission and distribution networks need to more than double in length by 2050 to keep pace with rising demand and to cope with rising variability of supply and demand. Battery storage, demand response and other sources of flexibility, including existing thermal capacity, are essential for maintaining system reliability. Investment in grids and storage needs to ramp up, from USD 13 billion today to USD 50 billion in 2050 to meet announced pledges. To 2040, this includes an estimated USD 27 billion required to realise planned cross-border interconnections under the ASEAN Power Grid.

Investment will be a key determinant of Southeast Asia’s future energy security. Clean energy investment has risen 60% since 2015, driving growth in total energy investment, which reached over USD 100 billion in 2025. However, at around 3% of global energy investment, this remains well below the region’s 9% share in global population. Energy investment rises 35% over the next decade under today’s policy settings and nearly doubles if announced pledges are met. Oil and gas spending is largely to stem declining output from existing fields. Investment in low-emissions power, electricity networks, storage and electrification of end uses rises across all scenarios.

Financing conditions will be critical in determining whether required investment levels can be achieved. The inflationary impacts of the energy crisis could result in higher interest rates which would push up financing costs, posing challenges for capital-intensive clean energy technologies. In much of Southeast Asia, where the cost of capital can be around twice as high as in advanced economies and China, this further weakens risk-adjusted returns and slows the pace of deployment of renewables, grids and energy efficiency measures, with implications for import dependence and system resilience. Mobilising sufficient investment, particularly to meet announced pledges, will depend on regulatory reforms and strong international public support to reduce costs of capital and to crowd in private finance.

Southeast Asia’s energy transition is closely linked to its role in global industrial and supply chains, particularly for critical minerals and clean energy technologies. The region is among the world’s fastest growing hubs for energy-intensive aluminium, iron and steel production, with output rising by 70% by 2035. Aligning industrial development with energy transition and security goals will be crucial, both to capture the economic opportunities in clean energy manufacturing and to reduce exposure to concentrated supply chains. Countries such as Thailand and Indonesia are increasingly linking EV deployment with domestic manufacturing strategies. Indonesia is a leading global supplier of nickel, while Malaysia, Myanmar and the Philippines also hold significant mineral resources and processing capacity. Battery manufacturing capacity is set to more than triple by 2030, while EV production capacity could rise more than tenfold, driven by strong industrial policy and increasing foreign investment, including from China. This expansion is a major opportunity for further economic development and job creation, but also requires policies to ensure responsible resource development, well-sequenced infrastructure investments, and approaches that play to national and regional strengths in a coordinated way.

Ensuring that the development of Southeast Asia’s energy systems is fair and inclusive remains a central challenge. While electricity access is close to universal in most countries, clean cooking access still lags, affecting 120 million people, or almost a fifth of the region's population. Energy affordability pressures are acute, particularly for lower-income households, and the costs of energy policies must be managed carefully. Changes in energy and industrial systems offer opportunities to create jobs, expand access and support economic development, building on successful examples such as the emergence of EV manufacturing hubs in Thailand and Viet Nam. Achieving these outcomes requires policies that balance emissions reduction, affordability and social inclusion, while ensuring that all people can participate in and benefit from the transition.

The Middle East conflict is both a stress test of Southeast Asia’s current energy system and a catalyst to accelerate structural change. It has exposed persistent vulnerabilities, but current trends do not yet point to a commensurate shift in energy strategies, leaving the region exposed to future shocks. The central challenge is to bridge near-term crisis management with faster implementation of longer-term solutions, including through stronger regional cooperation. How Southeast Asia responds will be pivotal for its resilience and for the global energy system.