Energy companies tend to be the big winners in energy crises, while costs attached to fuel shortages course through other sectors, ultimately landing on the consumer. The fallout from events in the Middle East that have strangled crude oil traffic is likely to be no different.

“Go back to stagflation in the 1970s and energy was the only green entry on the screen, everything else was red. Energy tends to offer real inflation protection because all the momentum gets behind it, and that’s what we’re seeing now,” said Jason Cheng, CEO and managing partner of Kerogen Capital, which invests in traditional energy and decarbonisation assets globally.

“Elsewhere, higher energy costs lead to higher chemical costs and then food shortages. Once inventories get drawn down, inflation expectations start to shift, questions are asked about persistently high interest rates, and maybe this precipitates recession or stagflation.”

Southeast Asia is particularly vulnerable to such cycles by virtue of a high dependency on oil imports from the Middle East, a proliferation of relatively low-margin manufacturing supply chains, and the prevalence of emerging economies less able to withstand stress. Private equity investors with exposure to industrials in the region already detect divergent narratives.

PrimeMovers Equity owns Excel Marco Industrial Systems, a Singapore-headquartered provider of systems integration services that counts deep sea oil and gas facilities as key customers. Soo Jin Goh, the private equity firm’s co-founder and CEO, flags significant demand linked to exploration activity in the North Sea and South America as oil majors prioritise alternatives to the Middle East.

The PrimeMovers portfolio also features Engtek, an aluminium die-casting and precision engineering business with factories in Malaysia and the Philippines. Energy costs have been partially mitigated by reliance on solar and geothermal sources, but it’s a case of when, not if, the company gets hit.

“We’re talking about a war that has been going for 40-plus days with a ceasefire. Have we been impacted? Not yet. Long term, will it hit us? Yes. The impact of oil prices will filter down,” said Goh.

Responses from other corners of private markets follow a similar pattern, ranging from bullishness about opportunities that may arise from countries prioritising energy security and reducing fossil fuel dependence to recognition of the near-term fallout for other sectors.

As governments around the region introduce subsidies to stave off crisis, investors across the spectrum have yet to register discomfort. From EQT in the large-cap space to Mekong Capital, a country-focused GP in Vietnam, the stated reason is a focus on market segments “not as dependent on fuel prices.”

Omar Mahmoud, a Philippines-focused managing director at mid-cap manager Creador, acknowledged rising transportation costs, but noted that portfolio companies haven’t been forced to raise prices. They will delay as long as possible with a view to cultivating customer goodwill.

There is, however, an acceptance that the longer the chokehold on the Strait of Hormuz persists, the scenario mapped out by Cheng is more likely to become reality. “If this continues for another two, three months, we will see a combination of price increases and margins coming under pressure,” said Nicholas Cator, founder and managing partner of Venturi, a consumer specialist in India and Southeast Asia.

Pain by numbers

The role of oil as an economic foundation stone is tied to its multivarious uses. According to the US Energy Information Administration, more than four-fifths of a 42-gallon barrel of crude oil is refined into motor gasoline, diesel fuel, and jet fuel. The rest is turned into an array of byproducts, from polymers used in clothing, packaging and construction materials to gases essential to the high-tech industry.

In this context, rising transportation and logistics costs are just the start of a company’s problems. The knock-on effect of higher crude prices cuts through supply chains, constraining access to key inputs. “No matter what you are making, you are likely to be impacted,” said Kyle Shaw, founder and managing partner of ShawKwei & Partners, who highlights availability of metals as a particular concern.

While certain resource-rich countries in Southeast Asia may have insufficient local refining capacity, Kerogen’s Cheng doesn’t regard this as a major obstacle, noting that Indonesia has been sending crude to Singapore for years and receiving oil products in return. Rather, it is the level of reliance on the Middle East for crude and the immediate need to satisfy demand via expensive alternative sources.

The dilemma is plain to see in shipping volumes. Nearly 90% of crude oil and 86.5% of liquefied natural gas (LNG) transported through the Strait of Hormuz in 1Q25 went to Asia, according to Nomura. Southeast Asia accounted for approximately one-quarter and one-third, respectively.

The Philippines relied on the Middle East for 95.2% of its crude imports in 2024, followed by Malaysia on 68.6%, Thailand on 59.7%, Singapore on 52.3%, and Indonesia on 22.4%. The region also provided one-quarter of Singapore and Thailand’s LNG and more than half of Thailand’s refined petroleum products.

“The Philippines is the one where you’re seeing the most pressure, near term, at both the macro and micro levels,” said Michael Langham, an emerging markets economist at Aberdeen, highlighting currency volatility, monetary tightening and a government emergency response plan that includes measures like work-from-home.

“Already, you’ve seen big inflation numbers, which showed a significant pick-up in terms of transport costs, and that’s the first month of the conflict. You would expect it to intensify as this goes on. Consumer confidence has also taken a hit.”

Additional pressure points include falling overseas remittances, strained public finances, and corruption concerns. But structural weakness is a regional problem. Gregory Poling, director of the Southeast Asia programme at the Center for Strategic & International Studies (CSIS), pointed to Indonesia’s flaky policy environment, uncertainty over government spending, and history of fuel price-linked social unrest.

The magnitude of the supply shock will become greater the longer it persists, in Langham’s view, as rising inflation forces central banks to hike interest rates, possibly triggering an inflationary spiral. As these second-round effects escalate, government intervention can only protect consumers for so long.

Passing on costs

For private equity firms with direct exposure to manufacturing, the watchwords are preparation and diversification. Smart operators hedge energy risk through forward purchase agreements and ensure they have alternative sources of supply across a range of commodities, according to Shaw of ShawKwei. Moreover, contracts should specify that customers absorb rising input costs.

“In plastic injection moulding, you agree what type of polymer or plastic resin is used and then say to the customer, ‘I’ll do your production and manage the quality and shipment, but the price is on you,’” he said. “Manufacturers make huge investments in facilities, equipment and people. If the price of resin jumps and they can’t pass it on to the customer, their entire endeavour is at risk.”

PrimeMovers takes a similar approach with its companies, insisting on contractual provisions that pass price increases to customers once they pass a certain percentage threshold. It helps that Engtek predominantly sells into high-growth industries like semiconductors and artificial intelligence.

Forward purchasing has not been widely utilised. Goh emphasizes renewables instead, noting that all six factories have solar panels, enabling them to sell into the grid. “Energy is the largest portion of our overall costs in the Philippines, but with renewables and geothermal capacity, it’s still less than 3%,” he said, while admitting that Engtek still relies on hydrocarbons for high-intensity processes like die-casting.

That focus on passing cost increases to customers exists in other sectors – all the way through to consumer, where investors prioritise businesses that are less susceptible to belt-tightening. Healthcare and education fall relatively easily into this category, while Creador’s Mahmoud and Venturi’s Cator also make the case for essential consumer goods and services.

“Given that inflation [in the Philippines] climbed to 4.1% in March, consumers may understandably feel the pinch,” said Mahmoud. “However, we are hopeful that our businesses offering high quality at affordable prices may remain resilient and even see some consumers trading down to take advantage of the value proposition.”

Creador and Venturi are investors in Dali, a Philippines-based retailer that operates more than 1,000 discount stores. The company, which has raised more than USD 30m in the past couple of years from private equity and development finance institutions (DFIs), appears to fit the inelastic demand profile, but Nick Bloy, a managing partner at Navis Capital Partners, is more circumspect.

“There isn’t much buffer in the Philippines, it’s very hand-to-mouth, and then discount retail is a thin-margin business serving the most price-sensitive parts of society,” he said.

“A company might still be attractive in the long term, but there will be pain first – maybe it needs capital to continue expanding because there isn’t much cashflow from existing operations – so you reprice the deal. In situations where stability of demand is questionable, your underwriting must be tougher.”

Momentum plays

On the flip side, PrimeMovers is not alone in identifying portfolio companies seen as beneficiaries of the crisis. Navis also has exposure to offshore oil and gas services through Cladtek, which supplies alloys that reduce pipeline corrosion. The business started in Indonesia and opened a factory in Brazil six years ago, tapping into increased development activity across South America.

ShawKwei has leveraged its industrials expertise to expand into energy services, forming Liberty Energy as the platform for several acquisitions across engineering, construction, and maintenance. Nearly half the 15,000-strong workforce serves petrochemical plants in the Middle East and India.

“Liberty is in the right place with the right footprint and has the right customer relationships,” said Shaw. “We are sitting right in the middle of an area that will need repair and reconstruction. In the US, refineries are running flat out, so customers want to ensure they are running at an optimal rate. And then there will be expansion of capacity in Southeast Asia.”

Other examples span biomass energy, the electric vehicle supply chain, and agricultural inputs. Mekong is an investor in Husk, a producer of biochar that enhances chemical fertiliser efficiency. Demand has spiked as reduced shipments of urea and ammonia – key chemical fertiliser components – from the Middle East have pushed up costs, said Freund, citing a 500% year-on-year jump in sales in 1Q26.

No one is offering predictions as to when tensions in the region will subside, but picking up the pieces is likely to be a protracted process. “There’s been a lot of critical damage to energy infrastructure in the Middle East, and it will take years to repair,” said Khan Yow, a managing director at Seraya Partners, which focuses on digital and energy transition infrastructure.

This implies an extended period of elevated prices as the supply-demand balance readjusts, but these beneficiary investments are more than crisis plays. Numerous industry participants expect a new normal – characterised by incremental structural change in energy supply chains – rather than a neat reset.

“The Strait of Hormuz will always be a problem; there will be flows but not at the scale seen historically. The Middle East needs to create pipelines in other directions to evacuate the oil, which would take between one and three years. LNG is different because it’s harder to move,” said Kerogen’s Cheng.

At the same time, oil production will ramp up in other geographies. The US is regarded as a logical source, partly because its shale oil reserves are relatively quick and easy to exploit. Venezuela, Brazil, and Guyana are also mentioned, which feeds into the services boom in South America.

Strategic imperatives

This may help address Southeast Asia’s diversification issue, but not necessarily its energy security concerns. Seraya’s Yow suggests that regional initiatives like the ASEAN Power Grid, which is intended to connect electricity networks of the 10 member states, might be rolled back “because energy security is about every country for itself.” Others point to enlarged domestic refining capacity as a likely outcome.

Moreover, greater consideration will be given to alternative fuel sources. The region’s six largest economies – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – relied on hydrocarbons for 90% of their energy needs in 2024. Oil and coal were 41% and 31%, respectively.

Cheng anticipates significant pushes in Southeast Asia: green fuels such as sustainable aviation fuel and renewable diesel; and nuclear, continuing parallels with the fuel crises of the 1970s, which prompted the US to make this energy source mainstream.

Last week, Singapore signed a cooperation framework with the International Atomic Energy Agency (IAEA) to strengthen its nuclear capabilities, having previously stated it was exploring options such as small modular reactors. Indonesia, the Philippines, Vietnam and Malaysia have announced plans to add nuclear to their energy mix or are conducting feasibility studies.

Should projects materialise from these plans, implementation will be drawn out. Twelve years passed in between the United Arab Emirates publishing a nuclear energy policy and connecting a plant to the grid. Seraya’s Yow warns of lead-ins of two years or more for hydrocarbons and hydropower as well, whereas other renewables can be immediately actionable.

“The equipment and supply chains for renewables are fairly mature. It’s primarily about acquiring land. If you have the space, you can construct right away. You can probably do it in 6-12 months,” he said.

Most Southeast Asian nations have existing renewables programmes, and these are expected to be prioritised. The Philippines is the region’s poster child, with 17.3% of its energy coming from renewables – including geothermal and hydropower – compared to 5.3% in Asia as a whole.

Stefano Ghezzi, a managing director at Brookfield, wonders what more the government could do to drive investment in an already liberalised market. But he sees scope for improvement elsewhere. “Other markets in Southeast Asia are moving through a similar cycle, and the question is, do current disruptions in the energy market accelerate that? My guess is probably yes, but it’s a long-term game,” he said.

The opportunity is now significant enough to get pension funds and insurers interested, according to Joost Bergsma, global head of clean energy at Nuveen, which is contemplating market entry. “When you start to see a combination of more established track records and more absolute dollars that are needed, that’s a backdrop to attract more capital,” he observed.

Certain uncertainty?

The knock-on effects of events in the Middle East are playing out in Southeast Asia across two tracks, neither completely certain. One is influenced by the timeline of the conflict itself and the implications for new and existing private equity investments as companies grapple with higher costs and governments look to stop a fuel crisis turning into a broader economic crisis.

The other involves national responses to energy security. It could elicit a wealth of deal flow within an ecosystem that encompasses the renewable energy and electric mobility value chains and technologies associated with energy storage, efficiency, and decarbonisation. What remains to be seen is whether policy environments remain stable and conducive to private markets participation.

British International Investment (BII), which recently committed USD 1.5bn to an Asia climate strategy that will focus on energy transition, is still assessing the likely impacts of the fuel crisis. But Srini Nagarajan, the DFI’s regional head, is confident that government behaviour in Southeast Asia specifically will shift in accordance with efforts to maintain growth trajectories.

“I’m more positive about the energy generation side of it and storage and the various decentralised solutions countries can bring in today because most have woken up substantially to the need for energy security, which they hadn’t [previously] anticipated,” Nagarajan said. “Life was going on in a certain pattern in the past and suddenly that’s going to stop.”