The conflict in the Middle East over the past month has created a ripple effect across the entire global economy and Vietnam, primarily through energy prices, trade, and capital flows. Disruptions at the Strait of Hormuz have driven oil prices higher while interrupting supply chains and international trade.
Against this backdrop, though Vietnam’s economy saw positive signs in the opening months of the year, with first-quarter growth projected at around 8-8.3 per cent, according to an April 1 report from the National Assembly Standing Committee, external pressures are becoming increasingly evident, posing significant challenges to the country’s 2026 growth outlook.
Pressure raised by prolonged conflict
While Vietnam is targeting double-digit annual growth for the 2026-2030 period, near-term prospects are under mounting pressure and could weaken significantly in the face of external shocks. This is also reflected in growth scenarios from the Asian Development Bank (ADB), which forecast that GDP growth in developing Asia-Pacific economies, including Vietnam, could decline by 0.3 to 1.3 percentage points in 2026-2027. At the same time, inflation could rise by 0.6 to 3.2 percentage points if disruptions in energy markets persist for more than a year.
The extent of the impact across the region will largely depend on how long the Middle East conflict lasts. If tensions are short-lived, potentially easing by the end of June, energy price pressures may subside relatively quickly. However, if the conflict extends into early 2027, the negative effects would become deeper and more prolonged. The shock would not only stem from higher energy prices but also spread to supply chains, global trade, financial conditions, as well as sectors such as tourism and remittances.
For Vietnam specifically, VinaCapital estimates that GDP growth could decline by about 1.5 percentage points this year due to spillover effects from the energy shock and a weakening external environment. Meanwhile, average inflation is projected to increase by around 2 percentage points, from approximately 3.5 per cent in 2025 to about 5-5.5 per cent this year, reflecting rising input costs and the broad pass-through of higher energy prices across goods and services. This suggests the economy faces not only downside risks to growth but also significant pressure in controlling inflation and maintaining macro-economic stability.
Energy supply remains a particular concern. Vietnam currently lacks the financial resources to maintain large-scale strategic oil reserves, while its energy dependence is relatively high. Its oil reserves are estimated at just one-tenth of Thailand’s, while its energy consumption intensity is double that of the Philippines and nearly three-times that of Indonesia, limiting its capacity to respond to supply shocks.
That said, experts believe Vietnam can still maintain oil and refined product supply for economic activities in the short term, with minimal disruption at least until mid-May. Beyond that point, however, risks are expected to rise sharply as reserves diminish. In fact, impacts are already emerging in certain sectors, notably aviation, where airlines are expected to cut around 20 per cent of flights due to surging fuel costs.
According to Mr. Michael Kokalari, Chief Economist at VinaCapital, with limited strategic reserves and high energy consumption, Vietnam has little margin for error. Early intervention measures by the government, such as temporarily suspending fuel taxes and utilizing the petroleum price stabilization fund, are appropriate. However, historical data shows that fuel subsidies have never exceeded 0.5 per cent of GDP, while current conditions may require intervention closer to 3 per cent of GDP, similar to Indonesia.
The biggest risk remains a prolonged conflict scenario. If Middle East tensions do not ease within the next two to three weeks, Vietnam may have only a “golden window” lasting until mid-May before the risk of fuel supply disruptions becomes severe. Should the situation escalate further, particularly with potential blockages in the Red Sea pushing Brent crude above $100 a barrel, the impact would intensify significantly. “In such a scenario, Vietnam’s economy could face disruptions comparable to those seen during the Covid-19 pandemic,” Mr. Kokalari warned.
Beyond energy, additional challenges are emerging. Though Vietnam made strong progress in public investment disbursement in 2025, rising construction material costs and supply constraints could significantly affect disbursement this year, especially as 70 per cent of the country’s asphalt is imported from the Middle East.
At the same time, higher fertilizer prices, difficulties in coal imports, and a decline in tourist arrivals, particularly from India, are weighing on the effectiveness of government stimulus measures.
Targeted fiscal policy
As external risks from the Middle East conflict intensify, Vietnam’s challenge is not only a short-term response but also maintaining macro-economic stability and strengthening economic resilience. Experts suggest policy should prioritize market stabilization rather than fully suppressing price signals. Allowing energy prices to partially reflect market movements, within a reasonable range, would encourage energy conservation, fuel switching, and investment in alternative energy sources. In contrast, broad price controls or blanket subsidies could distort market signals, delay necessary adjustments, and lead to inefficient resource allocation.
Fiscal policy, therefore, needs to remain flexible but targeted. Rather than spreading support too thinly, assistance packages should focus on vulnerable households and sectors most directly affected by rising input costs, such as transport, manufacturing, and agriculture. This approach would help mitigate the social impact of inflation while preserving fiscal space and maintaining the economy’s adaptive capacity.
Monetary policy will also play a crucial role. The State Bank of Vietnam should prioritize financial market stability, limit excessive volatility, and closely monitor inflation expectations. Targeted liquidity provision can help ensure smooth market functioning while avoiding excessive tightening that could further dampen growth. Clear and consistent policy communication will be key to anchoring inflation expectations.
On another front, Vietnam needs to proactively manage domestic energy demand to ease pressure. Measures such as encouraging electricity savings during peak hours, limiting non-essential energy use, promoting flexible working arrangements, and expanding public transport usage could deliver meaningful short-term results while supporting longer-term sustainability goals.
Overall, as Vietnam and other economies face increasingly pronounced external shocks, particularly from volatile energy prices and inflationary pressures, enhancing economic resilience has become more urgent than ever. According to ADB Chief Economist Albert Park, prolonged energy disruptions could force developing Asia-Pacific economies into difficult trade-offs between weaker growth and higher inflation. “Governments must therefore focus on easing market tensions, protecting the most vulnerable, and implementing policies that strengthen long-term resilience,” he said.
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