Middle East conflict sends ripple effects across Vietnam's economy

Middle East conflict sends ripple effects across Vietnam's economy

Escalation across the Middle East has tightened energy markets and disrupted key sea‑lanes, with spillover impacts across many sectors in Vietnam.

According to a legal alert by Ernst & Young Vietnam from March 18, Vietnam has already raised retail fuel prices twice within three days under emergency pricing rules, while the government issued Resolution No.36/NQ‑CP on March 6 to prioritise domestic energy security and enable rapid price adjustments and crude allocation.

Shipping lines and insurance markets have restricted gulf transits, with widespread rerouting and new emergency surcharges.

The alert highlights the impact of the Middle East conflict on key sectors in Vietnam, ranging from oil refining and petrochemicals to energy, power, manufacturing, and supply chains.

In regard to oil refining and petrochemicals, Vietnam’s fuel security relies heavily on imported feedstocks. Major refining facilities face critical supply chain pivots due to their historical reliance on Middle Eastern crude. For domestic refiners and their international sponsors, the immediate commercial challenge is securing and processing alternative feedstocks without breaching existing long-term supply agreements or compromising operational safety.

Another sector subject to disruption is liquefied natural gas (LNG) and liquefied petroleum gas (LPG) distribution. The disruption is already triggering legal mechanisms. With refrigerated vessels unable to safely transit conflict zones, major distributors have been forced to issue force majeure notices on imported LPG deliveries. Downstream industrial customers must urgently secure alternative energy sources while navigating sudden price spikes.

In terms of energy, power and infrastructure, major engineering, procurement and construction and supply contracts are highly vulnerable to critical path delays. The re-routing of vessels away from conflict zones is delaying the delivery of specialised equipment, such as components for renewable energy projects or equipment for LNG terminals. Project directors must immediately assess whether these logistical delays entitle contractors to a time extension and, crucially, whether they are entitled to claim prolonged costs.

Manufacturing and supply chains are also feeling the impact of tensions in the Middle East. Exporters and importers are facing war-risk insurance premiums and container surcharges. Margins are being instantly eroded, raising urgent questions about the ability to pass these costs upstream or downstream under existing supply agreements.

Furthermore, the Middle East crisis is also having a consequential impact on the broader economy. The energy shock is cascading into all sectors. Transport and logistics providers face spiked fuel costs and eroding margins that they will attempt to pass on to manufacturers and retailers, which then feed into broader inflation. Furthermore, energy-intensive industries such as fertiliser and plastics manufacturing are exposed to extreme input price volatility, threatening the financial viability of fixed-price supply contracts.

Against the backdrop, businesses with Vietnam‑facing contracts should act now to preserve rights and cash flow, using statutory force majeure, fundamental change of circumstances, and contractual time/price adjustment mechanisms where available.

VIR