Rising oil prices triggered by escalating tensions in the Middle East are forcing policymakers across Southeast Asia to reconsider their monetary policy plans, with several central banks now weighing whether to pause or delay interest rate cuts.
The region entered 2026 on relatively strong economic footing. Trade and investment flows remained resilient despite tariff concerns in 2025, and inflation across many Southeast Asian economies had stayed moderate. This gave governments and central banks room to consider easing monetary policy to stimulate growth.
However, the sharp rise in oil prices has complicated that outlook. Crude prices have climbed more than 30% since the outbreak of the conflict involving the United States, Iran, and Israel, briefly pushing global benchmarks above $100 per barrel as fears mounted over disruptions to oil shipments through the critical Strait of Hormuz.
The waterway is a vital artery for global energy markets, with a large portion of Asia’s oil supply passing through it. Any disruption there could significantly affect fuel costs and inflation across the region.
Economists from OCBC Bank noted in a recent report that most Southeast Asian central banks are already nearing the end of their monetary easing cycles. Chief economist Selena Ling and senior ASEAN economist Lavanya Venkateswaran suggested that rising energy prices could force policymakers to remain cautious.
Meanwhile, global oil markets are also watching emergency actions by the International Energy Agency, which recently announced plans to release 400 million barrels from emergency reserves to help stabilise prices.
Yet analysts warn the move may have limited impact. According to MUFG senior currency analyst Michael Wan, the scale of disruption linked to the Strait of Hormuz could far outweigh the effect of releasing strategic reserves. The planned release represents only a few days’ worth of global oil demand.
Malaysia and Vietnam hold steady
In response to global uncertainty, Bank Negara Malaysia recently opted to keep its policy rate unchanged. Officials said domestic inflation is likely to remain contained despite rising commodity prices, as the country continues to see stable economic growth and moderate demand.
Economists expect both Malaysia and Vietnam to keep interest rates unchanged for much of 2026. Vietnam’s last rate cut came in June 2023, while Malaysia most recently eased policy in July 2025.
Indonesia and Thailand face tougher choices
Other economies in the region may face more complicated decisions if oil prices remain elevated. Countries such as Indonesia and Thailand could be forced to reconsider planned rate cuts as inflation pressures rise.
Indonesia’s central bank is particularly focused on stabilising its currency. The Indonesian rupiah has recently weakened, and policymakers are keen to prevent it from slipping beyond the psychologically important 17,000-per-dollar level.
Analysts say narrowing interest-rate gaps with the Federal Reserve make it harder for Indonesia to cut rates without risking further currency pressure.
At the same time, higher oil prices could strain government finances if crude remains significantly above the $70-per-barrel assumption used in the country’s 2026 budget.
Thailand faces similar challenges. As Southeast Asia’s largest net energy importer, the country is particularly vulnerable to higher fuel costs.
Economists warn that a sustained rise in oil prices could weigh on Thailand’s economic recovery, which has been supported by improvements in tourism, manufacturing and public spending. In a severe scenario, crude prices rising toward $120 per barrel could slow growth and even trigger stagflation.
Singapore and Philippines watch inflation risks
Elsewhere in the region, Singapore may lean toward tightening policy if imported inflation rises. The Monetary Authority of Singapore previously tightened monetary policy multiple times during 2021 and 2022 when global commodity prices surged.
Analysts say the central bank is likely to closely monitor inflation trends before making any immediate moves.
Meanwhile, the Bangko Sentral ng Pilipinas has signalled that rate cuts may no longer be guaranteed this year.
Governor Eli Remolona recently said that rising oil prices could increase inflationary pressures and potentially push price growth beyond the country’s 2–4% target range.
If that happens, the Philippines could be forced to consider raising interest rates instead of cutting them to support economic growth.
Uncertain outlook
For now, central banks across Southeast Asia appear to be adopting a cautious approach. While the region’s economies began the year with stable inflation and improving growth prospects, the surge in oil prices has added a new layer of uncertainty.
Much will depend on how long energy prices remain elevated and whether geopolitical tensions around the Strait of Hormuz escalate further.
