Tensions between the United States and Iran have taken a backseat amid global health concerns over the ongoing pandemic known as COVID-19, but ongoing bilateral animosities still remain a threat to the international community, particularly Southeast Asia. Further escalations between Washington and Tehran could trigger instability in the Middle East and, in turn, provoke economic consequences for Southeast Asia.
The Association of Southeast Asian Nations (ASEAN) is sensitive to volatility in the Middle East, where most of its oil comes from and millions of its citizens work. Additional risks are in store if the safety of Southeast Asians in the Middle East are threatened, which would likely prompt government-led evacuation measures. ASEAN nations may also struggle to balance their diplomatic relationships with Tehran if Washington ramps up pressure on the Islamic Republic. Given these stakes, it's no surprise that ASEAN governments are closely monitoring U.S.-Iranian ties.
Early this year, President Donald Trump's administration conducted a drone strike that killed Tehran's top military commander Qasem Soleimani—a move that saw Tehran respond with missile attacks on U.S. military bases in Iraq. Many anticipate Tehran to take more action in the near future, whether directly or through the many militant groups it sponsors.
In January, Iranian Supreme Leader Ayatollah Ali Khamenei said on Twitter that his country’s missile offensives “were not enough” and speaking to the Financial Times in February, Iranian Brigadier General Hossein Dehghan said "complementary blows will happen over time."
“Iranian retaliation could take the form of a quick response by proxies against U.S. allies and assets, but a larger response is likely to be more carefully calculated and indirect in an effort to avoid outright conflict,” Paul Sheldon, chief geopolitical risk analyst at S&P Global Platts wrote in a January note.
Rising oil prices put ASEAN economies at stake
Increased hostilities could result in higher oil prices, which would be a major blow to Southeast Asia’s oil-importing economies. Rising prices could result in climbing inflation and wider current account deficits—an unwelcome development when the U.S.-China trade spat has already hit economic growth. The international oil benchmark Brent jumped to nearly US$70 per barrel following Soleimani’s death but has since dropped below the $40 mark.
The Middle East provides half of Southeast Asia's oil imports, which amounted to nearly $75 billion in 2018, according to S&P Global Platts. Primary suppliers include Saudi Arabia, the United Arab Emirates, Kuwait, Qatar and Iraq. Their crude travels through the Strait of Hormuz, a strategic waterway located between the Persian Gulf and the Gulf of Oman that Tehran has previously threatened to block. Any geopolitical strife around those areas could disrupt crude production, infrastructure and transportation routes, sending prices back up to $70.
“One-off incidents targeting Gulf oil flows are possible, as are attacks on Gulf oil infrastructure,” Sheldon warned.
Poorer countries will suffer
For Southeast Asia’s poorer countries, extra financial damage may be likely. The Philippines, the region’s leading exporter of human labour, has more than a million workers in the Middle East whose remittance payments contribute to the Philippine economy. If the livelihood of those migrant workers are impacted from military attacks, they would be unable to send money home, limiting consumer spending of their families.
Incoming international remittances as a percent of Philippine gross domestic product was 10.5% in 2017, according to the Migration Policy Institute. For Vietnam, that number was nearly 7% whilst Myanmar’s was almost 4%.
Several governments, including Manila, Jakarta and Bangkok, have said they stand ready to evacuate citizens in hotspot areas like Iran and Iraq, but doing so would place additional strain on state budgets. Such an operation would cost “billions,” Philippine President Rodrigo Duterte told lawmakers in January as he requested Congress to set up a special fund for that purpose.
Political peace is threatened
Any flare-ups between Washington and Tehran could also weigh on Southeast Asia’s foreign policy. Several nations in the region maintain diplomatic ties with Iran but wish to remain neutral in international conflicts. Muslim-majority Malaysia, for instance, has long advocated for global Muslim unity and condemned Soleimani’s death but it still adheres to U.S. sanctions. In the face of conflict however, Southeast Asia might be forced to choose sides.
Soleimani’s assassination “highlights the challenges of trying to maintain a strong and resilient relationship with Iran in the face of U.S. pressure and the desire to remain neutral in the tensions,” Scott Edwards, a doctoral researcher at University of Birmingham who specialises in Southeast Asia, wrote in a Febuary report published by the think-tank Al Jazeera Centre For Studies.
“Overtly supporting Iran runs the risks of encouraging the escalation of the conflict and the damaging of their interests,” Edwards warned.
(Photo credit: Keith Zhu)