The fallout in Southeast Asia

The Iran war has imposed immediate costs on Southeast Asia by disrupting energy supplies, increasing fertilizer costs, raising risks for roughly 3 million Southeast Asians who live or work in the Middle East—including an estimated 2.4 million Filipinos—and disrupting remittance flows. The war thus places significant pressure on lives and livelihoods, particularly in manufacturing-heavy economies. Yet the war’s consequences are likely to extend well beyond these direct effects by reinforcing several strategic trends that were already underway.

Strategic consequences

The first and perhaps most significant impact of the war is the further erosion of international law and, concomitantly, constraints on the use of force. Violations of these constraints are hardly new. However, actions by major powers carry particular significance because of their importance in the international system. This is especially true when the state in question has traditionally been regarded—and portrayed itself—as a defender of international law, even if its record has not always been consistent. Coming less than two months after the U.S. intervention in Venezuela, the strikes on Iran reinforce concerns that military force is becoming the default tool of statecraft rather than a measure of last resort grounded in international law. In the context of intensifying geopolitical competition, this may mean the difference between a cold war and a hot one.

Many countries in Southeast Asia depend on international law and international institutions to preserve their autonomy and protect themselves from coercion by stronger states. The international law of the sea, in particular, has been critical in enabling coastal states to push back against excessive Chinese maritime claims and to align with U.S. positions on passage and freedoms of the seas, without having to pick a side. The unraveling of the rule of law and constraints on the use of force narrows the strategic space available to these countries. For years, they have sought Washington’s support in pushing back against China’s unlawful and coercive behavior. They now find themselves in the uncomfortable position of seeing the United States deny that international law applies to its own actions. Today, it is by no means clear that choosing to defend international legal principles necessarily aligns countries with the United States.

The second impact of the Iran war is that it both reveals and increases the vulnerability of Asia’s strategic waterways. As I wrote for Foreign Affairs, the crisis in the Strait of Hormuz demonstrates the feasibility—even for a weaker power—of weaponizing a chokepoint, the scale of disruption that even a localized crisis can cause, and the willingness of major powers to impose and tolerate widespread costs. This could encourage similar tactics in strategic straits in and around Southeast Asia, including the Strait of Malacca, the Luzon Strait, and the Taiwan Strait. A waterway, moreover, need not actually be closed: the mere threat of disruption is enough to raise insurance premiums, reroute shipping, and unsettle commodity markets. This in turn increases the pressure on secondary waterways, such as Indonesian archipelagic waters, where the United States and China have been quietly maneuvering for advantage.

The implications of increased challenges to the maritime environment for Southeast Asia are profound. The Strait of Malacca carries up to 40% of global trade. The South China Sea accounts for roughly one-third of both global maritime commerce and global maritime crude oil trade. Southeast Asia’s prosperity depends on the uninterrupted movement of goods, energy, and—often overlooked but no less important—data through these waterways.

Implications for U.S. interests

The war in Iran is also deepening doubts about U.S. leadership and reliability. While this may not mean reduced economic or strategic engagement with the United States, it may make it more difficult for Washington to achieve its goals and objectives in the region.

Quite apart from its legality, the war in Iran has further demonstrated Washington’s willingness to pursue a narrow conception of national interests, even when doing so imposes substantial wider costs, including on allies and partners. The economic fallout from the Iran war follows the worldwide tariffs that have already greatly damaged confidence in the United States as a constructive actor. That the United States is behind two of the region’s most significant recent shocks would not have been lost on Southeast Asian capitals. In an annual poll of Southeast Asian elites conducted between January and mid-February this year, the top geopolitical concern respondents listed was U.S. leadership (51.9%)—with aggressive behavior in the South China Sea coming in third (48.2%). When asked whether they would align with the United States or China if forced to choose, 52% of respondents selected China over the United States (48%). China’s lead was considerably larger at the country level, particularly in Indonesia (+60.2 percentage points), Malaysia (+36 points), and even U.S. partner Singapore (+32.6 points). These findings predated the Iran war. The conflict is likely to reinforce them. 

The Iran war’s reverberations, compounding the effects of worldwide tariffs, are generating political pressures across Southeast Asia that could in turn hurt U.S. interests. In the Philippines, where an energy emergency has been declared, thousands of Filipino workers have protested surges in fuel prices. While protesters are trying to get their government to do more, they are also targeting the United States (and Israel), with demonstrations occurring at the U.S. Embassy in Manila. In Indonesia, the government is scaling back food programs for school children and other vulnerable groups as the crisis has further strained its ability to fund them. Economic pressures could strengthen anti-American sentiment and make cooperation with the United States politically costlier. Recently, Malaysia announced it would no longer permit U.S. Navy port calls in direct response to public opposition to the war in Iran. The failure of European capitals to respond to Washington’s calls for greater assistance in the Strait of Hormuz may also offer a glimpse of how Southeast Asia could respond to future U.S. requests, even if broader ties are maintained—or even increased.

A loss for the United States, of course, is not always a win for China. Southeast Asia has its own troubles with China, most notably in the South China Sea, but also over China’s excess industrial capacity, which the region has difficulty absorbing. Yet, the consequences of China’s unlawful and coercive actions at sea pale compared to the widespread disruption caused by the fallout from the Iran war (and the worldwide tariffs before that). The region is also pragmatic—even the Philippines, which has been most active in pushing back against Chinese claims, has sought continued economic engagement with Beijing. China has for decades been the region’s largest trade partner and an increasingly important source of foreign direct investment (the United States is the region’s largest investor, but investments are concentrated mainly in Singapore and in Malaysia). It consistently ranks as the region’s most influential economic power in Southeast Asia by far: this year, roughly 56% chose China as the most influential economic power while the United States trailed at about 15%. China’s economic heft and sustained engagement give it an edge if the region is unable to sufficiently diversify its economic relationships.  

Policy recommendations

First, Washington must align its actions with international law and avoid rhetoric insisting that international law is irrelevant to the United States.

Second, the United States and its allies and partners must take urgent steps to reduce the vulnerabilities in Asia’s maritime chokepoints. This includes further bolstering maritime domain awareness and response capabilities in key Southeast Asian maritime states—including Indonesia, Malaysia, and Singapore, which hosts U.S. logistics facilities—to detect and deter activities aimed at disrupting strategic waterways. It also entails addressing the concentration of maritime traffic through chokepoints, including by upgrading secondary deep-water ports in the Philippines and Vietnam. 

Third, Washington should reinforce confidence in the United States as a reliable ally and partner through high-level affirmations of its alliance commitments and partnerships and by demonstrating greater consideration for allied and partner concerns. The war against Iran was waged with little regard for the global repercussions, which have been substantial. Although the clock cannot be turned back, the United States can help mitigate the costs its actions have imposed. For example, Washington should direct U.S. liquefied petroleum gas and crude exports toward vulnerable Southeast Asian countries, rather than leaving them entirely exposed to market forces. neglects the region’s importance to the U.S. Indo-Pacific strategy.

Conclusion

It is worth asking whether the United States’ deteriorating position in Southeast Asia is reversible. Southeast Asian countries continue to see value in a strong U.S. presence as a counterweight to Chinese power. For years, the United States’ relatively weak economic engagement was offset by its security role. But doubts are growing about U.S. reliability as Washington signals reduced support for long-standing allies and partners in Europe and elsewhere. Meanwhile, U.S. actions—whether in the form of sweeping tariffs or the war against Iran—are imposing real economic costs on the region.  

For now, the United States is aided by strategic stickiness. Southeast Asian capitals have long operated on the assumption that the United States is an indispensable power. The Iran war will not transform Southeast Asia overnight. But if Washington continues to weaken legal constraints on the use of force while imposing substantial costs on allies and partners, doubts about U.S. leadership and reliability will continue to grow. Over time, Southeast Asian countries may begin to question the value the United States brings to the region—and whether the benefits outweigh the costs. In such a scenario, the regional balance may slowly but surely shift in Beijing’s favor.