Price Hikes at the Pump Destabilize Southeast Asian Politics

Welcome to Foreign Policy’s Southeast Asia Brief.

The highlights this week: Countries around the region brace for higher fuel prices, a Thai ship is struck by Iranian missiles as it transits the Strait of Hormuz, and Chinese influence reshapes a border in Myanmar.

This handout photo released by the Royal Thai Navy shows smoke rising from the Thai bulk carrier Mayuree Naree near the Strait of Hormuz after an attack on March 11.

Handout/Royal Thai Navy/AFP via Getty Images

Oil is up to more than $100 dollars a barrel and will likely rise further. Southeast Asian governments are already feeling the pinch politically as petrol stations reportedly run dry in many countries.

Measures by governments across the region include trying to conserve fuel; legislating cuts to fuel taxes; and, in some cases, limiting energy exports.

The immediate problem is that every country in the area, barring Singapore, either provides fuels subsidies in some form or is proposing to roll them out. The subsidies cushion the pocket of the consumer but threaten government finances.

In Indonesia, such subsidies were already set to absorb nearly 10 percent of the government’s 2026 budget. But that hinged on the assumption of oil averaging roughly $70 a barrel and a relatively steady rupiah. Neither of these holds.

Even with the government signaling that there will be price increases, the subsidy bill is set to become much bigger. The government is preparing to roll out implementation of an emergency COVID-19-era regulation to let it ignore its 3 percent deficit limit. But with investors already nervous about Indonesian debt, markets could rebel.

The 1998 revolution was in part sparked by petrol prices rising by an eyewatering 71 percent. Between 2005 and 2018, Indonesia saw five riots over fuel prices, and memories of last year’s unrest, fueled partly by cost of living issues, are fresh.

The day after the first U.S. strikes on Iran, Indonesia’s military was conspicuously deployed around the capital, Jakarta. The government has downplayed the apparent connection.

Other governments have reacted less precipitously but have also rolled out expensive measures to protect consumers at the pump.

While Thailand has yet to finalize its post-election government, the presumptive (and incumbent) Prime Minister Anutin Charnvirakul won office with promises to boost growth, roll out crowd-pleasing consumer support schemes, and trim the national debt.

It was always going to be tricky to square this circle, but now it looks to be for the birds. A fuel price cap introduced on March 10 is costing about 1.2 billion baht (about $37 million) a day and has wiped out a previous surplus for the government’s oil fuel fund.

Price hikes may be coming, but this will eat into growth.

Malaysia’s petrol and diesel subsidy bill has quadrupled over the past month, as the government has promised to keep fuel prices steady.

In Vietnam, prices have continued to rise even as the government draws on its fuel price stabilization fund.

Meanwhile, the Philippines’ government—having long ago liberalized the fuel market—is scrambling to impose regulations to let it control prices.

These countries lack the same bloody history of fuel-related riots that Indonesia has. But all doubtless appreciate the fact that price hikes can be potent political destabilizers.

Transport unions in the Philippines are planning national strikes. One such strike in 2017, held over a different set off issues, cost an estimated 1.28 percent of daily GDP. And in Vietnam in 2008, fuel price rises helped spark a rare flurry of strikes and protests.

Myanmar’s government was already facing civil war. That government has