Energy Crisis Strikes South East Asia’s Fragile Travel Recovery

“Very bare bones.” Those words were used by Philippine President Ferdinand Marcos Jr  to describe the scaling down of the 48th ASEAN Leaders’ Summit, to be hosted in Cebu in May. All preparatory meetings will be moved online, as Southeast Asia confronts the radiating economic shockwaves of a war in the Middle East over which it has no influence.

For the Philippines’ under-performing travel economy, the timing is catastrophic. As the 2026 Chair of the Association of Southeast Asian Nations (ASEAN), it expected to host over 600 official meetings across the year, including the high-profile ASEAN Summit which attracts global attention. These events bring together delegates, decision-makers, logistics teams, and media from the 11 ASEAN countries, and from partner nations across Asia Pacific.

Beyond the political and diplomatic machinations, the Philippines was poised to generate much-needed revenues and publicity for its airlines, hotels, event venues, transport operators, restaurants, retailers, and tourism attractions. “Our tourism industry is now under a great deal of pressure because of what is happening,” lamented the under-pressure President who declared a National Energy Emergency on 24 March and has mandated all government offices and state-run enterprises to slash power and fuel consumption.

Fragile Recovery

After the US and Israel’s bombing raids on Iran and Lebanon began on 28 February, Iran retaliated with missile and drone strikes on countries in the Gulf region. Airports and hotels were hit, airspaces closed and thousands of transit passengers stranded. The initial focus for travel was on the aviation hubs of Dubai, Abu Dhabi and Doha, where thousands of daily flights connect the continents. As air safety in the region collapsed, travellers postponed long-haul flights and tour group bookings and conferences were rescheduled.

This made transcontinental travel more difficult and more expensive. Iran, a country half the size of India, sits directly in the flight path between Southeast Asia, India, southern China, Australia, New Zealand and the Gulf airports connecting to Europe, Africa and the Americas. With these airports initially closed, and now operating limited schedules, airfares have skyrocketed on direct routes between Asia Pacific and the rest of the world.

Six years after Southeast Asian governments shut their borders to repel the Covid virus, the region’s travel economies remain in highly fragile states of recovery. The war is inflicting a new wave of damage. Once Iran effectively closed the Strait of Hormuz, ASEAN nations became embroiled in an energy crisis created externally. Some 90% of seaborne oil shipped through that narrow waterway heads to Asia, plus significant quantities of liquefied natural gas, fertilisers for food production and petrochemicals used by manufacturing exporters.

With reserves limited and spot-prices surging, the crisis pitched net-oil importers in Southeast Asia, like Thailand, Singapore, Vietnam, the Philippines and Cambodia, into direct competition with larger, deeper pocketed regional economies, such as China, India, Japan and South Korea, to procure new supplies. Hence, energy security is a core agenda theme of the stripped-down ASEAN Summit the Philippines will host next month.

 Echoes of the Pandemic

 While this crisis is caused by conflict rather than a coronavirus, similarities with the Covid pandemic are emerging. Government borrowing is growing. Presidents and Prime Ministers are making national TV addresses to exhort people to work from home, drive less and conserve energy usage, and to announce fuel subsidies to quell inflation. Fuel rationing is spreading, and filling petrol cans is prohibited in Thailand. Ride-hailing and food-delivery apps are raising their rates. In response, shoppers are taking defensive actions. In Malaysia, supermarket lines are lengthening as people stockpile rice, toilet paper and essential foodstuffs amid concerns that supplies might become scarce and prices spiral. 

Economic shocks tend to have graduated impacts on travel and tourism, but here too echoes from the pandemic are evident. Airlines are parking unused planes in dry-climate maintenance facilities in Spain. Hotel rates are being slashed in cities like Bangkok and Kuala Lumpur as business travel, meetings and conference demand declines. Meanwhile, Singapore’s Prime Minister Lawrence Wong made a rare official visit to Hong Kong reviving memories of the heavily trailed, but ultimately futile, Air Travel Bubble that the two governments twice attempted to get off the ground in 2020 and 2021.

Unlike the pandemic, airports remain open and busy, but air fares are soaring. At the start of the energy crisis, airlines imposed moderate fuel surcharges. Thai Airways, for example, added 10% to its fares. Those fees are rising. Indonesia’s National Air Carriers Association is lobbying the government to raise its fuel surcharge cap to 15%. On 1 April, Cathay Pacific, which says jet fuel accounts for 30% of its operating costs, introduced new levies starting from 34% for all passengers, including on routes to/from New Zealand.

 The Crack Spread

Escalating operating costs for airlines are caused by the widening ‘crack spread’; the difference between the prices of crude oil and jet fuel. On 20 February, one week before the US and Israel’s bombing raids began, the crack spread was USD24.48 per barrel. That soared to USD86.22 on 20 March, before moderating slightly to USD81.44 on 27 March.

 The cost of jet fuel is rising especially fast in the Asia & Oceania region, which accounts for 22% of global demand. The average global jet fuel price in the first two months of 2026 was USD90 per barrel. On 27 March, it was USD195.19, but in Asia & Oceania it hit USD208.79. Jet fuel is also tougher to source as supply tightens. China and Thailand are among the Asian nations to have halted fuel exports, including aviation fuel.

This returns to the spotlight the issue of fuel hedging; usually a 12-month derivative contract to cover against fuel price spikes. Airlines hedge different proportions of their jet fuel needs, some hedge only on crude oil, and some not at all. With jet fuel more volatile than at any time since 2022, when Russia invaded Ukraine, hedging is a risky bet. As a result, if the war continues, we could see higher fuel costs and inflated air fares for several months, and airlines might retrench flight services. The national carriers of Vietnam and the Philippines, plus private carriers in those two countries, Vietjet and Cebu Pacific, have already suspended some domestic and regional flights. 

 Developmental economics are also being upturned. Last week, Singapore postponed the launch of Southeast Asia’s first Sustainable Aviation Fuel Levy until 2027. The reasoning was simply stated: “the impact of the ongoing conflict in the Middle East on airlines and passengers.” Last November, Singapore announced that a mandatory charge would apply for all passengers and cargo shipments to help fund the costs for airlines to comply with new regulations that sustainable aviation fuel must comprise 1% of the fuel mix. The levy varies depending on aircraft type, geographical band and cabin class, and was due to start for all Singapore-origin departures from 1 October. For now, that has shifted to 1 January 2027.

 So, What Happens Next?

Travel industry players across Southeast Asia are pinning their hopes on intra-Asian tourism in the coming months, led by key source markets. Key barometers to watch will be India’s summer school holidays, beginning in May, and China’s summer school recess, starting in July, which traditionally see a spike of tourists region-wide.

The strength of regional tourism depends on consumer sentiment, and the affordability and availability of flights. Now, it comprises extra factors, such as whether ride-hailing drivers, trains and metros have sufficient fuel, and hotels are still permitted to use air conditioning.

-Asia Media Centre