Vietnam's Record $5.21 Billion Trade Deficit: How the Iran War Broke a 30-Year Trend

Inflation ran alongside the trade gap. Consumer prices rose 5.6% year-over-year in May, accelerating from 5.46% in April and 4.65% in March—rates that pushed well above the government's 4.5% target .

The Strait of Hormuz shock: How the Iran war hit Vietnam's trade balance

The primary accelerant behind the import surge was the economic fallout from the US-Iran war, which triggered an immediate energy crisis when Iran closed the Strait of Hormuz on March 4, 2026. That chokepoint normally handles approximately 20% of global oil trade and significant volumes of liquefied natural gas . Its disruption removed an estimated 8–10 million barrels per day of crude supply from global markets .

Brent crude prices, which had been creeping upward since late February, surged past $100 per barrel and reached as high as roughly $120 per barrel after the closure . For Vietnam—a net importer of petroleum products with limited domestic refining capacity—the price spike translated directly into a ballooning import bill .

In the March–April period alone, Vietnam increased its imports of refined oil products by nearly 17% in volume and 144% in dollar terms compared to a year earlier, according to a Reuters analysis of customs data, as the country scrambled to offset crude supply shortfalls for domestic refineries . For the full first quarter of 2026, Vietnam spent approximately $2.93 billion importing nearly 3.37 million tonnes of petroleum products, a 77.8% jump in value and over 44% in volume .

These energy costs cascaded through the economy. Fuel taxes were suspended and retail gasoline prices rose above 27,000 VND per liter as the government attempted to manage domestic supply . Jet fuel shortages led to flight cuts, threatening the tourism sector that accounts for roughly 8% of Vietnam's GDP .

Beyond energy: The structural deficits with China and South Korea

The energy shock aggravated pre-existing structural trade imbalances that long predate the 2026 crisis. Vietnam's manufacturing-led growth model depends on importing machinery, components, and raw materials from regional manufacturing powerhouses, most notably China and South Korea.

China has consistently been Vietnam's largest source of imports and its largest bilateral trade deficit partner. In 2025, bilateral trade between Vietnam and China reached $256.4 billion, with Vietnam recording a deficit of $115.6 billion . The deficit with China was still growing rapidly entering 2026, reaching $33.3 billion in the first quarter alone, a 34.4% increase over the same period a year earlier . Analysts at Taiwan's CIER have noted that Vietnam's manufacturing sector heavily relies on intermediate goods imported from China, and that the country's substantial trade surplus with the United States is structurally supported by this deficit with China, creating dual trade risks .

South Korea presents a similar profile. Vietnam's trade deficit with South Korea hit $10.6 billion in the first quarter of 2026, an increase of nearly 50% year-over-year . Imports from South Korea rose 34.5% to $18.7 billion, driven by machinery, electronics, and components that feed Vietnam's foreign-invested export factories .

The Ministry of Industry and Trade has characterized the Q1 deficit as "growth-oriented," noting that the majority of imports consist of essential production inputs that enable future exports . However, the May data suggests that the distinction between cyclical import needs and structural vulnerability had begun to erode under the weight of emergency energy purchases and elevated commodity prices.

A triple squeeze: Exports, dollars, and the balance of payments

The concentration of exports in the US market adds another layer of risk. The US remained Vietnam's largest export destination, with first-quarter exports reaching $39.03 billion . Foreign-invested enterprises account for roughly 75% of Vietnam's exports, meaning the benefits of trade flows disproportionately to multinational corporations while the import costs—especially dollar-denominated energy purchases—strain Vietnam's own balance of payments .

Currency analysts at MUFG warned in March that sustained oil prices around $100/bbl could push the USD/VND exchange rate above 27,000, adding further pressure on import costs . That pressure, alongside potential US tariff actions, kept uncertainty high into mid-2026 .

What May revealed about Vietnam's economic model

The May 2026 trade deficit was a compound crisis, not a single-factor event. Yes, the Strait of Hormuz closure was the proximate cause of surging energy costs. But the magnitude of the record $5.21 billion gap also reflects an economy that had grown dependent on high-volume, low-margin manufacturing with deep import dependencies. When a geopolitical shock hits global energy markets and component supply chains simultaneously, Vietnam's trade balance acts as a shock absorber—and May 2026 showed just how hard that shock can hit.