How the Strait of Hormuz Crisis Is Disrupting Southeast Asia’s Manufacturing Sector

The 2026 conflict between the United States, Israel, and Iran—and Iran’s closure of the Strait of Hormuz—has sent shockwaves through Southeast Asia’s manufacturing economy. Because the strait normally carries roughly a fifth of the world’s oil and gas shipments, disruptions quickly translate into higher energy prices and supply uncertainty for import‑dependent Asian economies.

For ASEAN’s factory sector, the result has been a classic external shock: rising fuel and feedstock costs, weakening manufacturing momentum, and downgraded growth forecasts. The effects are uneven across countries, but the overall pattern is clear—manufacturing conditions are becoming more fragile even though strong electronics exports are preventing a deeper slowdown.

Why the Strait of Hormuz Matters for Asian Manufacturing

The Strait of Hormuz is one of the world’s most critical energy chokepoints. A large share of global oil and liquefied natural gas exports transit through the narrow waterway between Iran and Oman before reaching Asia.

When the waterway was effectively blocked during the 2026 war, shipping disruptions pushed global fuel prices higher and rattled energy markets.

For Southeast Asia, which relies heavily on imported energy to power factories, this translated directly into higher production costs. Energy‑intensive industries—from petrochemicals to electronics assembly—faced rising electricity and transport costs, squeezing margins and raising prices for finished goods.

Manufacturing Momentum Is Slowing Across ASEAN

Before the geopolitical shock, ASEAN manufacturing had been expanding strongly. The regional manufacturing PMI reached a record 53.8 in February 2026, indicating rapid growth in new orders and production.

But momentum weakened in the following months. According to S&P Global, the ASEAN manufacturing sector saw:

• Slower growth in new orders and output
• Rising input costs and output prices
• Falling inventories and longer supplier lead times

These trends pushed the regional PMI down from its February peak, signaling a cooling industrial cycle.

Employment growth has also weakened. While manufacturing jobs have not collapsed across the region, hiring has slowed and employment gains have been described as only marginal in recent PMI surveys.

Indonesia and Vietnam Show the Sharpest Slowdowns

Country-level PMI data highlights where the slowdown is most visible.

In Vietnam, the manufacturing PMI dropped to 51.2 in March 2026 from 54.3 in February, indicating slower expansion in factory activity.

Indonesia saw a similar shift, with its PMI falling to roughly 50–51 in March after readings above 53 the previous month.

These declines do not indicate contraction—both readings remain above the neutral 50 mark—but they show that growth in production and new orders has cooled significantly since the start of the year.

The slowdown reflects several overlapping pressures:

• Higher imported energy costs
• Global shipping disruptions
• Rising uncertainty affecting export demand

Manufacturers in both countries are especially sensitive to energy prices because of large export sectors in electronics, textiles, and industrial goods.

Malaysia’s More Mixed Picture

Malaysia’s manufacturing outlook has been somewhat more resilient than that of Indonesia or Vietnam.

The country benefits from diversified exports and strong demand in electronics and semiconductor supply chains. Some analysts also note that higher global energy prices can partially benefit Malaysia through stronger LNG‑related revenues.

As a result, while Malaysia has faced supply disruptions linked to the Hormuz crisis, the broader economy has remained relatively stable compared with some regional peers.

Growth Forecasts for Asia Are Being Cut

Beyond factory floors, the geopolitical shock is also reshaping regional economic forecasts.

The World Bank now expects developing East Asia and Pacific growth to slow to 4.2% in 2026, down from 5.0% in 2025, citing higher energy prices and global uncertainty linked to the Middle East conflict.

Other forecasts point in the same direction. Regional projections for the ASEAN‑6 economies have been trimmed to roughly 4.5% growth in 2026, reflecting the drag from energy shocks and geopolitical risk.

The Asian Development Bank has also warned that prolonged tensions could further reduce growth across developing Asia if supply disruptions persist.

Why ASEAN Manufacturing Hasn’t Collapsed

Despite these headwinds, Southeast Asia’s industrial sector has not entered a broad downturn.

One major reason is the continued strength of the electronics cycle. Demand for electrical machinery and electronics exports—particularly those tied to AI infrastructure and digital devices—remains robust in parts of ASEAN.

This export strength helps offset weaker commodity trade and higher input costs, stabilizing production in countries with large electronics sectors such as Malaysia and Vietnam.

The Bottom Line

The Hormuz crisis has not triggered a manufacturing collapse in Southeast Asia, but it has clearly weakened the sector’s momentum.

The main effects so far include:

• Higher energy and input costs for factories
• Slower manufacturing PMI growth across ASEAN
• Stronger uncertainty for exporters and investors
• Downgraded regional growth forecasts

Indonesia and Vietnam have experienced the sharpest PMI declines, while Malaysia appears more resilient due to diversified exports and energy income. At the same time, strong electronics demand is acting as an important buffer.

In short, ASEAN manufacturing is still expanding—but under growing pressure from energy shocks and geopolitical uncertainty tied to the Strait of Hormuz crisis.