For much of the first quarter of 2026, many analysts treated the economic consequences of the Iran war as a future risk. Today, that risk has become reality.

Across Southeast Asia, manufacturers are beginning to close facilities, reduce shifts and shed jobs as rising energy costs, disrupt supply chains and weakening demand filters through the region’s industrial base.

The pain is no longer confined to stock markets, inflation statistics or boardroom projections.

It is increasingly affecting workers and families across Asean.

According to a recent Nikkei Asia report, manufacturers in key Asean economies are reporting layoffs and closures as the prolonged disruptions associated with the Iran conflict continue to increase production costs.

While electronics exports linked to artificial intelligence and data-centre demand remain relatively resilient, many traditional manufacturing sectors are struggling under severe pressure.

The reasons are not difficult to identify.

The first is energy. Asean remains deeply dependent on imported oil, gas and petrochemical feedstocks originating from West Asia.

Since the outbreak of the Iran conflict and the disruptions surrounding the Strait of Hormuz, energy prices have remained elevated while freight and insurance costs have surged.

Manufacturers throughout Asia are paying substantially more for fuel, transportation and industrial inputs.

The second challenge concerns supply chains.

Modern manufacturing relies on complex networks extending from petrochemicals and plastics to packaging materials, industrial lubricants and fertilisers.

Disruptions in Hormuz have delayed shipments and increased shortages of critical materials throughout Asia.

These disruptions have affected everything from automotive components and electronics to food processing and consumer goods manufacturing.

Third, the confidence effect is beginning to bite. Businesses do not invest aggressively when uncertainty dominates the global economy.

Orders are being delayed, inventories are being managed more cautiously, and firms are reluctant to expand employment when future demand remains unclear.

Across Asia, manufacturing indicators have slowed as producers confront rising costs and weaker external demand.

The consequences for Asean are especially troubling because manufacturing has long served as one of the region’s most important engines of employment.

For decades, countries such as Malaysia, Indonesia, Thailand, Vietnam and the Philippines benefited from export-oriented industrialisation.

Manufacturing created millions of middle-income jobs, generated foreign exchange earnings and integrated Asean into global value chains. When factories begin reducing headcount, the impact extends far beyond industrial estates.

Retail spending weakens, housing demand softens and government revenues come under pressure.

This development exposes an uncomfortable structural reality.

Asean’s intra-regional trade remains around 23% of total trade.

While Asean often celebrates its status as one of the world’s most successful regional organisations, its members continue to depend overwhelmingly on markets outside Southeast Asia for growth.

When external shocks emerge — from financial crises to pandemics and now geopolitical conflicts in West Asia — the region remains highly vulnerable.

The lesson is clear: Asean cannot continue to rely exclusively on global supply chains over which it exercises little influence.

The region urgently needs stronger economic resilience mechanisms.

One priority is the establishment of a comprehensive Asean strategic reserve system. Such a system should not be limited to rice alone. It should include fuel reserves, fertilisers, industrial feedstocks and selected critical minerals essential for manufacturing continuity.

Strategic reserves are not merely emergency stockpiles; they are instruments of economic stability during periods of geopolitical disruption.

Equally important is the acceleration of Asean’s internal market integration.

The long-discussed vision of transforming Asean Plus Three — Asean together with China, Japan and South Korea — into the world’s largest integrated market deserves renewed attention.

If external demand weakens, stronger regional demand can cushion economic shocks.

Malaysia, as a leading advocate of Asean centrality, should champion this agenda.

The region requires greater investment in logistics connectivity, digital trade, energy cooperation and industrial diversification. Asean must become more than a convenient production platform for global markets.

It must become a genuine economic community capable of sustaining growth from within.

History offers a useful reminder. Asean was established in 1967 amid uncertainty and conflict.

It survived the Cold War, the Asian Financial Crisis, SARS and Covid-19 because its members understood the value of collective action. The Iran war represents another test of regional resilience.

The layoffs appearing across Asean factories today may seem modest compared with previous crises. Yet they are warning signals.

If supply disruptions persist and energy prices remain elevated, more closures and retrenchments are likely to follow.

The region still has time to act, but the window is narrowing. The challenge before Asean is therefore not merely economic. It is strategic.

Either the region deepens cooperation and builds the buffers necessary to withstand future shocks, or it remains exposed to every geopolitical crisis unfolding thousands of kilometres away.

The workers losing their jobs today are reminding Asean that resilience cannot remain a slogan. It must become policy.

The views expressed are those of the writer and do not necessarily reflect those of FMT.