HowSoutheastAsiaNavigatestheHormuzCrisis

As the flames of war in Iran ignite the Strait of Hormuz, the global energy artery has suddenly constricted. Thousands of kilometers away in Southeast Asia, a silent, invisible crisis is unfolding. Southeast Asian politicians assess that this crisis is no less severe than the impact of the Covid-19 pandemic, and some observers have even begun to worry that continued uncertainty in the Middle East could lead to political instability in Southeast Asia.

It was recently the traditional Thai New Year, Songkran Festival. As a public holiday period, Thai tradition would see millions of people driving back to their hometowns. But a mid-March poll showed that due to extremely tight fuel supplies and high prices in Thailand, about 60% of the public planned to cancel or reduce travel during Songkran, further impacting already fragile local economies.

Similar to during the Covid-19 pandemic, governments across Southeast Asia have introduced measures encouraging civil servants to work from home — but this time not to avoid cross-infection, but to reduce travel and save unnecessary energy consumption. As early as March 9, just 10 days after the Iran conflict began, all Philippine government departments started implementing a four-day work week.

Subsequently, Thailand recommended that agencies and state-owned enterprises work from home, with indoor air conditioning set to 27 degrees Celsius, while Vietnam government advised the public to use private cars less. Since April, Indonesia and Malaysia — which have relatively higher energy self-sufficiency rates — have also implemented work-from-home measures. Malaysia announced that federal civil servants living more than 8 kilometers from their workplaces may work from home three days per week, affecting over 200,000 people.

For the middle class, reduced travel and energy-saving measures merely cause inconvenience. But this energy crisis has had a far more devastating impact on low-income groups — affecting not only the living, but also the deceased.

The BBC reported that the mainstream funeral practice in Thailand is cremation, which requires fuel for temple cremations. However, due to purchase restrictions, many temples have been unable to cremate bodies in a timely manner — the diesel obtained in a single allotment is simply insufficient to complete one cremation. In Indonesia, to reduce the crisis's impact on public finances, the government reduced the number of days for free nutritious meals provided to tens of millions of students and pregnant women from six days per week to five.

Governments have begun to alert the public to the secondary effects of the crisis. On April 13, Malaysian Home Minister Saifuddin Nasution publicly stated: "While authorities are constantly trying to find solutions, the Middle East situation has indeed caused some supply shortages in Malaysia. The people must prepare to face painful times ahead. The authorities remind the public not to take this lightly, but there is no need to panic."

Oil prices in Southeast Asia have never been merely economic figures — they are the foundation of politicians’ futures and social stability. In 1998, the Asian financial crisis coincided with rising oil prices. The Indonesian government was forced to eliminate kerosene and gasoline subsidies, causing fuel and essential goods prices to skyrocket, which then triggered nationwide riots — becoming the fuse that toppled Suharto's regime.

Currently, Southeast Asian governments are taking action on multiple fronts. On one hand, they are seeking to diversify energy supplies: Vietnamese Prime Minister Pham Minh Chinh and Indonesian President Prabowo Subianto have recently visited Russia to seek energy cooperation and alternative supplies. On the other hand, authorities hope to increase reserves and accelerate the transition to new energy. However, in many Southeast Asian countries, oil prices before the conflict were very cheap, and most people used diesel. There was little urgency for energy transition, and the public had no motivation to switch to more expensive new energy sources. Now, the crisis is forcing a transition, but the process is destined to be difficult.

This crisis has also sounded an alarm for the Strait of Malacca. As the most critical shipping chokepoint in the Asia-Pacific region, the volume of oil passing through this strait is enormous. According to data from the U.S. Energy Information Administration (EIA), in the first half of 2025, the daily oil flow through the Strait of Malacca was approximately 23.2 million barrels, accounting for 29% of global seaborne oil. Of this, over 60% of the oil came from the Persian Gulf region — meaning it had to pass through the Strait of Hormuz before entering the Malacca shipping lane. By the scale of oil transit, the Strait of Malacca is actually the world's largest oil transportation chokepoint. Some have begun to worry whether the Strait of Malacca, as a “chokepoint,” could become the next geopolitical weapon.

On April 14, a senior Malaysian politician, 53-year-old Tengku Zafrul Aziz, came to Hong Kong to attend the HSBC Global Investment Summit. In December 2025, Tengku Zafrul’s two-term senatorship ended. Having reached the statutory maximum number of consecutive terms, he officially stepped down as Minister of Investment, Trade and Industry.

He was subsequently appointed as Senior Political Advisor to the Prime Minister and Chairman of the Malaysian Investment Development Authority (MIDA), continuing to lead national investment and economic strategy as a core member of Prime Minister Anwar Ibrahim’s inner circle. He is also a member of the Political Bureau of Malaysia’s ruling party, the People’s Justice Party.

In his interview with Caixin, he spoke openly about the impact of the Middle East crisis on Malaysia and ASEAN, Malaysia's strategy amid the Middle East conflict, and his assessment of the Strait of Malacca's future.

The interview transcript follows.

Caixin: Singapore Foreign Minister Vivian Balakrishnan recently had a diplomatic disagreement with Malaysia over navigation rights in the Strait of Hormuz. He insisted on freedom of navigation rights based on international law and refused to negotiate with Iran. What is Malaysia’s position on this?

Tengku Zafrul: For Malaysia, our consistent position is to engage with all countries. The rule of law is important, but even if we believe certain countries do not fully comply with international rules, the best approach remains engagement and dialogue. Engagement does not equal endorsement. This is our sovereign right. China and Singapore also have their own sovereign positions, and governments should respect each other.

The external view is that on the issue of engaging Iran, some countries have a different position from Malaysia. For us, our position must be consistent — we maintained engagement with Iran before the conflict, and we continue during the conflict, including on issues such as commodity transport and crude oil. We do not judge who is right or wrong between the US and Iran, but we insist on dialogue and engagement.

Some countries believe that “those who do not follow the rules should not be engaged,” but people also question: does the United States also abide by the same international law? Why does a double standard exist? The world is changing, right and wrong are becoming increasingly blurred, so it is better to persist in engagement.

Malaysian Prime Minister Anwar Ibrahim recently stated that several Arab leaders have asked him to convey messages to the Iranian president. Malaysia has good relations with Iran — what role does Malaysia play on the Iran issue?

For my understanding, we obviously maintain communication with the Iranian government at various levels. The Prime Minister recently met with Iran’s ambassador to Malaysia. Malaysia hopes to play a role in promoting peace and maintaining regional stability to the greatest extent possible, similar to the role we have played in Gaza, Cambodia, and Thailand.

Currently, Pakistan is playing an important role, and Malaysia strongly supports them. We are also promoting dialogue and negotiation through various channels, striving for outcomes beneficial to the world.

More broadly speaking, how would you define Malaysia’s current role in ASEAN and its national strategy amid geopolitical uncertainty?

Malaysia has long practiced the principle of strategic neutrality. This neutrality is "strategic" in nature: it requires balancing Malaysia’s interests, ASEAN’s interests, and partner countries' interests, covering trade, investment, security, energy, and other areas.

By not taking sides, we can negotiate equally with all parties and maintain credibility; by practicing what you preach, we can truly play a role. We advocate being friends with everyone.

Australian Prime Minister Anthony Albanese is currently visiting Malaysia to discuss energy supply security. Malaysia is Australia's third-largest supplier of refined oil products. With global energy supplies currently tight, will Malaysia continue to honor its supply commitments?

Yes, we will honor our commitments while safeguarding the interests of our own people. Malaysia still needs to import about 40% of its crude oil for refining; we are also a net exporter of natural gas.

The recent shortage of crude oil supply is indeed worrying, and we are boosting our domestic refining capacity. Without good diplomatic relations, why would suppliers prioritize helping us? Everyone is scrambling for oil, everyone is buying at market prices — supply security is more important than price.

Apart from oil supply, what other practical pressures is Malaysia currently facing?

Economically, the first wave of impact is supply shortages; the second wave will be inflation transmission — rising fertilizer prices and logistics costs will transmit along the supply chain to food, production, and consumption, ultimately borne by the public.

Currently, the subsidized price Malaysians pay for 95-octane gasoline remains at 1.99 ringgit ($0.5) per liter. The public does not yet feel the impact of rising international oil prices acutely. However, the government's subsidy costs have surged: from about 700 million ringgit per month previously to now 6 billion ringgit per month, nearly 10 times the original amount. The government will try to maintain subsidies.

But secondary effects are coming soon — prices in areas the government cannot fully control, such as food, have already risen, and the cost of living is increasing. Our neighboring countries have begun implementing measures: the Philippines declared a national energy emergency and temporarily suspended consumption taxes on liquefied petroleum gas and kerosene; Cambodia, Thailand, and Laos have implemented measures such as civil servants working from home and traffic restrictions.

We have reduced the monthly quota for subsidized gasoline from 300 liters per person per month to 200 liters, but 90% of people use no more than 200 liters per month. Calculated by household, 200 liters per person — a household with multiple people can share the quota, so the total amount is actually quite sufficient.

Looking back at history, fuel prices in Southeast Asia have never been just an economic issue, but also a matter of social stability. How do you assess the impact of this crisis on ASEAN countries?

Even for Malaysia, we cannot sustain 6 billion ringgit in monthly fuel subsidies long-term. That’s 36 billion ringgit over six months — we cannot go on like that. We must shift to targeted subsidies: only subsidizing vulnerable groups; high-income groups should not benefit. I myself am receiving subsidies — that’s not fair.

For other countries, this will ultimately evolve into a social stability issue. Governments face difficult choices: do they have the fiscal space to subsidize? The worst-case scenario is stagflation — rising inflation, slowing growth, or even recession.

Countries without fiscal buffers will fall into serious political predicaments. Governments appear helpless, credibility declines, and social shocks follow. Malaysia's economic fundamentals are relatively strong and can hold out longer; small countries with limited fiscal space will feel social pressure earlier and more intensely.

How severe do you anticipate this wave of impact will be, and how long will it last?

The challenge is that the impact of a war in a distant place is not immediately felt by everyone. The public may feel the government is doing nothing, but in reality, the government’s options are limited. This is different from the Covid-19 pandemic: the pandemic threat was direct and globally synchronized; the social impact of an energy crisis is more hidden and longer-lasting.

After inflation, stagflation may follow. The real danger of stagflation is that long-term persistence causes “economic scarring” — small and medium enterprises permanently close, restarting is difficult, and this evolves into deep social problems. At that point, government support is needed, but not all governments have sustained financial capacity. We hope the war ends soon.

Some say the world may already be in an “invisible world war.” What is your view?

We can compare this to the 1973 oil crisis: that was an embargo; this is triggered by war. The scale of impact is comparable to a world war, but it is not a traditional hot war. If the crisis becomes prolonged, the description of an “invisible world war” holds true.

In the early stages of the Iran conflict, people generally believed it would only last one to three weeks. Capital markets were volatile but relatively calm, not particularly reflecting this as a real threat — but that is actually the worrying part.

Rising bond yields, airlines cutting flights in some regions, and weakening tourism are just early signals. If the crisis becomes prolonged, the impact will spread comprehensively. We hope the crisis does not escalate. Malaysia and China are relatively resilient, but for other countries, it's hard to say.

Regarding the Strait of Hormuz, how many Malaysian oil tankers are passing through?

About 7 tankers have received Iranian approval to pass. One of them will arrive in Malaysia as early as tomorrow (April 17), and another is expected to arrive next week. However, the U.S. military is implementing a blockade, and I don’t have clear information on the status of the remaining tankers.

If fees start being charged for passage through the Strait of Hormuz in the future, what impact would that have on Malaysia?

None of these 7 tankers paid fees. We hope there will be no charges, and we hope we can receive special treatment. This is thanks to Malaysia’s good diplomatic relations with Iran.

For Malaysia, the Strait of Hormuz is crucial, and even more so for Asia. About one-quarter of the world's seaborne oil needs to pass through the Strait of Hormuz, and up to 80% of Asian countries' energy consumption depends on this passage.

Fortunately, we are not completely dependent on Hormuz: 60% of our crude oil comes domestically, and 40% is imported for refining. Malaysia’s National Economic Action Council (MTEN) meeting has established a clear direction for responding to the increasingly severe and expected-to-continue global energy crisis, and will take multiple key measures to ensure stable supplies of energy and basic goods. The national oil company (Petronas) is also taking action — fuel supply at gas stations can be guaranteed through the end of June.

But what does the Strait of Hormuz incident mean for the Strait of Malacca? Some are starting to worry that Malacca could become a geopolitical weapon, or even start charging fees?

The impact is significant. The Strait of Malacca is particularly important to China. Collaborating with neighboring countries to ensure Malacca’s security is crucial because Malacca is the world's busiest strait.

Although alternative routes exist, the voyages are longer and costs are higher. We do not have the kind of direct confrontation in our region that exists in the Middle East. Relations among our neighbouring coastal states are good, and the risk of the Strait of Malacca being closed is very low.

After the Middle East conflict, Southeast Asian countries are all seeking alternative supplies, increasing reserves, and turning to renewable energy. What is Malaysia doing?

We have a National Energy Transition Plan, but we cannot move too fast — the costs are too high. Solar and wind power require energy storage batteries, which are expensive, and the power grid also needs stable supply. Currently, Malaysia still relies on coal, and the proportion of hydropower is increasing.

The Iran crisis reminds us: we need to speed up the transition moderately to avoid over-reliance on a single energy source. We are a net exporter of natural gas, our energy mix is relatively stable, and diversification is key.

Malaysia and China are cooperating well. Chinese enterprises are bringing energy solutions. For example, Chinese companies setting up factories in Malaysia can build their own power supply, but are required to use renewable energy, which helps accelerate the transition.

Considering the Middle East conflict and the overall slowdown in global economic growth, what are Malaysia’s biggest economic challenges and weaknesses this year?

First, over-reliance on exports: Malaysia’s total trade in goods and services accounts for nearly 150% of nominal GDP. Malaysia is a highly open economy, and a global economic slowdown directly impacts growth. Second, the subsidy system is unsustainable: the scale of subsidies is large, and spending surges during crises. Long-term, it needs to be gradually reduced and made more targeted.

But on the other hand, because of the Iran war, global capital is flowing out of the Middle East and turning to markets like Asia. Will ASEAN benefit from this?

Yes, many fund managers are saying that they are adjusting their asset allocations, reducing holdings in the Middle East and increasing allocations to more stable Asia. This is also why global FDI is declining while ASEAN FDI continues to grow.

Investors favor ASEAN for two main reasons: first, the market — 700 million people, GDP growth of 4-5%; second, supply chain diversification — the “China + 1” or even “ASEAN +” strategy. European companies are also coming due to high energy costs.

For some ASEAN countries, international partners are paying significantly more attention to supply chain security, energy security, and policy stability. UNCTAD data shows that global FDI fell by double digits in 2025, while FDI inflows to ASEAN grew by about 8%.

After global turmoil, interest in ASEAN has further increased. Crisis does bring opportunities. Enterprises are seeking supply chain diversification to reduce reliance on a single region. We also want diversification, and other countries also want to locate their industrial chains in ASEAN.

You have long been responsible for Malaysia-China economic and trade relations and investment. What is the next key area of Malaysia-China cooperation? What advice do you have for Chinese companies wanting to invest in Malaysia?

China has been Malaysia’s largest trading partner since 2009. Recently in Shenzhen, I saw that Chinese technology companies have strong investment intentions, focusing on high-value areas such as semiconductors and electric vehicles, which aligns with Malaysia’s goals.

Our advice to Chinese companies wanting to invest in Malaysia: First, connect through official channels. Use MIDA (Malaysian Investment Development Authority) as a single window to coordinate with all ministries — do not rely on intermediaries. I have heard cases where some Chinese enterprises were cheated by intermediaries when buying land.

Second, through official channels, you can access multiple incentive policies, because there are special incentives for high-end technology sectors, while some industries have none. We just launched a brand-new incentive framework using a scoring system. Based on your score, you receive corresponding incentives — especially when you invest in priority areas, train local employees, or partner with local enterprises, your score is higher. Simply put, the higher the score, the more incentives you receive.

Third, MIDA has established One Stop Center (IOSC), providing investors with full service from project application to operation, which can simplify administrative procedures and accelerate approvals.

Contact editor Lu Zhenhua (zhenhualu@caixin.com)