Asias

This is the moment East Timor was officially declared ASEAN’s 11th member, what Prime Minister Xanana Gusmao called a ‘historic moment’. East Timor, which gained independence from Indonesia in 2002, is Asia’s youngest nation.

Development financing to Southeast Asia is expected to fall by more than $2bn in 2026 due to recent cutbacks by Western governments, according to a major Australian think tank.

The Sydney-based Lowy Institute predicted in a new report on Sunday that development assistance to Southeast Asia will drop to $26.5bn next year from $29bn in 2023.

The figures are billions of dollars below the pre-pandemic average of $33bn.

Bilateral funding is also expected to fall by 20 percent from about $11bn in 2023 to $9bn in 2026, the report said.

The cuts will hit poorer countries in the regions hardest, and “social sector priorities such as health, education, and civil society support that rely on bilateral aid funding are likely to lose out the most”, the report said.

Fewer alternatives

Cuts by Europe and the United Kingdom have been made to redirect funds as NATO members plan to raise defence spending to 5 percent of gross domestic product (GDP) in the shadow of Russia’s war on Ukraine.

The European Union and seven European governments will cut foreign aid by $17.2bn between 2025 and 2029, while this year, the UK announced it will cut foreign aid spending by $7.6bn annually, the report said.

The greatest upset has come from the United States, where earlier this year, President Donald Trump shut down the US Agency for International Development (USAID) and slashed nearly $60bn in foreign assistance. More recently, the US Senate took steps to claw back another $8bn in spending.

The Lowy Institute said governments closer to home, like China, will play an increasingly important role in the development landscape.

“The centre of gravity in Southeast Asia’s development finance landscape looks set to drift East, notably to Beijing but also Tokyo and Seoul,” the report said. “Combined with potentially weakening trade ties with the United States, Southeast Asian countries risk finding themselves with fewer alternatives to support their development.”

After experiencing a sharp decline during the COVID-19 pandemic, Chinese overseas development assistance has started to bounce back, reaching $4.9bn in 2023, according to the report.

Its spending, however, focuses more on infrastructure projects, like railways and ports, rather than social sector issues, the report said. Beijing’s preference for non-concessional loans given at commercial rates benefits Southeast Asia’s middle- and high-income countries, but is less helpful for its poorest, like Cambodia, Myanmar, Laos and East Timor.

As China and institutions like the World Bank and the Asian Development Bank play a more prominent role in Southeast Asia, less clear is how Japan and South Korea can fill in the blanks, according to experts.

Japan, South Korea

Grace Stanhope, a Lowy Institute research associate and one of the report’s authors, told Al Jazeera that both countries have expanded their development assistance to include civil society projects.

“[While] Japanese and Korean development support is often less overtly ‘values-based’ than traditional Western aid, we’ve been seeing Japan especially move into the governance and civil society sectors, with projects in 2023 that are explicitly focused on democracy and protection of vulnerable migrants, for example,” she said.

“The same is true of [South] Korea, which has recently supported projects for improving the transparency of Vietnamese courts and protection of women from gender-based violence, so the approach of the Japanese and Korean development programmes is evolving beyond just infrastructure.”

Tokyo and Seoul, however, are facing similar pressures as Europe from the Trump administration to increase their defence budgets, cutting into their development assistance.

Shiga Hiroaki, a professor at the Graduate School of International Social Sciences at Yokohama National University, said he was more “pessimistic” that Japan could step in to fill the gaps left by the West.

He said cuts could even be made as Tokyo ramps up defence spending to a historic high, and a “Japanese-first” right-wing party pressures the government to redirect funds back home.

“Considering Japan’s huge fiscal deficit and public opposition to tax increases, it is highly likely that the aid budget will be sacrificed to fund defence spending,” he said.

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Asia’s dependence on Middle East oil and gas — and its relatively slow shift to clean energy — make it vulnerable to disruptions in shipments through the Strait of Hormuz, a strategic weakness highlighted by the war between Israel and Iran.

Iran sits on the strait, which handles about 20% of shipments of the world’s oil and liquefied natural gas, or LNG. Four countries — China, India, Japan and South Korea — account for 75% of those imports.

Japan and South Korea face the highest risk, according to analysis by the research group Zero Carbon Analytics, followed by India and China. All have been slow to scale up use of renewable energy.

In 2023, renewables made up just 9% of South Korea’s power mix, well below the 33% average among other members of the Organization for Economic Cooperation and Development, or OECD. In the same year, Japan relied more heavily on fossil fuels than any other country in the Group of Seven, or G7.

A truce in the 12-day Israel-Iran war appears to be holding at the time of writing, reducing the potential for trouble for now. But experts say the only way to counter lingering uncertainty is to scale back reliance on imported fossil fuels and accelerate Asia’s shift to clean, domestic energy sources.

“These are very real risks that countries should be alive to — and should be thinking about in terms of their energy and economic security,” said Murray Worthy, a research analyst at Zero Carbon Analytics.

Japan and South Korea are vulnerable

China and India are the biggest buyers of oil and LNG passing through the potential chokepoint at the Strait of Hormuz, but Japan and South Korea are more vulnerable.

Japan depends on imported fossil fuels for 87% of its total energy use and South Korea imports 81%. China relies on only 20% and India 35%, according to Ember, an independent global energy think tank that promotes clean energy.

“When you bring that together — the share of energy coming through the strait and how much oil and gas they rely on — that’s where you see Japan really rise to the top in terms of vulnerability,” said Worthy.

Three-quarters of Japan’s oil imports and more than 70% of South Korea’s oil imports — along with a fifth of its LNG — pass through the strait, said Sam Reynolds of the Institute for Energy Economics and Financial Analysis.

Both countries have focused more on diversifying fossil fuel sources than on shifting to clean energy.

Japan still plans to get 30-40% of its energy from fossil fuels by 2040. It’s building new LNG plants and replacing old ones. South Korea plans to get 25.1% of its electricity from LNG by 2030, down from 28% today, and reduce it further to 10.6% by 2038.

To meet their 2050 targets for net-zero carbon emissions, both countries must dramatically ramp up use of solar and wind power. That means adding about 9 gigawatts of solar power each year through 2030, according to the thinktank Agora Energiewende. Japan also needs an extra 5 gigawatts of wind annually, and South Korea about 6 gigawatts.

Japan’s energy policies are inconsistent. It still subsidises gasoline and diesel, aims to increase its LNG imports and supports oil and gas projects overseas. Offshore wind is hampered by regulatory barriers. Japan has climate goals, but hasn’t set firm deadlines for cutting power industry emissions.

“Has Japan done enough? No, they haven’t. And what they do is not really the best,” said Tim Daiss, at the APAC Energy Consultancy, citing Japan’s program to increase use of hydrogen fuel made from natural gas.

South Korea’s low electricity rates hinder the profitability of solar and wind projects, discouraging investment, a “key factor” limiting renewables, said Kwanghee Yeom of Agora Energiewende. He said fair pricing, stronger policy support and other reforms would help speed up adoption of clean energy.

China and India have done more — but gaps remain

China and India have moved to shield themselves from shocks linked to changing global energy prices or trade disruptions.

China led global growth in wind and solar in 2024 and generating capacity rose 45% and 18%, respectively. It has also boosted domestic gas output even as its reserves have dwindled.

By making more electricity at home from clean sources and producing more gas domestically, China has managed to reduce imports of LNG, though it still is the world’s largest oil importer, with about half of the more than 11 million barrels per day that it brings in coming from the Middle East. Russia and Malaysia are other major suppliers.

India relies heavily on coal and aims to boost coal production by around 42% from now to 2030. But its use of renewables is growing faster, with 30 additional gigawatts of clean power coming online last year, enough to power nearly 18 million Indian homes.

By diversifying its suppliers with more imports from the US, Russia and other countries in the Middle East, it has somewhat reduced its risk, said Vibhuti Garg of the Institute for Energy Economics and Financial Analysis.

“But India still needs a huge push on renewables if it wants to be truly energy secure,” she said.

Risks for the rest of Asia

A blockade of the Strait of Hormuz could affect other Asian countries and building up their renewable power generating capacity will be a “crucial hedge” against the volatility intrinsic to importing oil and gas, said Reynolds of the Institute for Energy Economics and Financial Analysis.

Southeast Asia has become a net oil importer as demand in Malaysia and Indonesia has outstripped supplies, according to the ASEAN Centre for Energy in Jakarta, Indonesia. The 10-nation Association of Southeast Asian Nations still exports more LNG than it imports due to production by Brunei, Indonesia, Malaysia, and Myanmar. But rising demand means the region will become a net LNG importer by 2032, according to consulting firm Wood Mackenzie.

Use of renewable energy is not keeping up with rising demand and production of oil and gas is faltering as older fields run dry.

The International Energy Agency has warned that ASEAN’s oil import costs could rise from $130 billion in 2024 to over $200bn by 2050 if stronger clean energy policies are not enacted.

“Clean energy is not just an imperative for the climate — it’s an imperative for national energy security,” said Reynolds.

On Friday, the price of Brent crude oil, the international benchmark, was up 0.55% on the day at $68.10 a barrel. Over the month, the fuel has risen by 6.26% in value, although prices have pulled back from last week’s peak.

South Asia, a crucible of ancient civilizations and modern rivalries, stands at a perilous crossroads. For over two decades, Michael Kugelman, a leading American foreign policy expert and Director of the South Asia Institute at the Woodrow Wilson Center, has meticulously charted its volatile course. His insights reveal a region increasingly caught between the existential dread of nuclear arsenals and the explosive forces of populist narratives and fervent nationalism. The recent, harrowing crisis between India and Pakistan in May 2025 – a conflict that saw missile strikes, drone warfare, and an almost immediate breakdown of a US-backed ceasefire – serves as a chilling testament to these escalating dynamics.

Kugelman’s analysis begins with a foundational, yet often overlooked, truth: South Asia’s inherent fragmentation. “This is a region where you have many countries that simply struggle to get along,” he observes, pointing beyond the omnipresent India-Pakistan antagonism to include fraught relations between Pakistan and Afghanistan, and India’s recurring disputes with its smaller neighbors. Borders, everywhere, are a flashpoint – disputed, porous, or simply volatile.

This chronic discord found its sharpest expression in the May 2025 conflagration. Following a brutal terrorist attack in Pahalgam, India launched “Operation Sindoor,” a series of missile strikes deep inside Pakistan. Islamabad retaliated with “Operation Bunyaan al Marsoos,” deploying its own ballistic missiles and engaging in an unprecedented drone duel. Kugelman notes how quickly the Line of Control (LoC), which had enjoyed a four-year truce, ignited. “Once again, now the LoC is extremely tense and particularly significant, given that you’ve got two nuclear states there,” he underscores, highlighting the hair-trigger nature of this enduring fault line.

The ascent of populist and nationalist politics, particularly in India, has fundamentally altered the calculus of nuclear deterrence, making escalation both more probable and profoundly less predictable. Kugelman argues that the current Indian government has shrewdly harnessed a hardline stance on Pakistan for domestic political gain. The 2019 crisis, unfolding on the cusp of Indian elections, saw New Delhi launch airstrikes beyond Pakistan-administered Kashmir for the first time since 1971. “I think that one could argue that the Indian decision to take the steps that it did… was in some ways driven by considerations about politics,” Kugelman explains.

This phenomenon is not unilateral. Domestic political agendas in both nations frequently weaponize cross-border tensions. Even if the strident rhetoric from nationalist media in India is partly performative, “that still has an impact on how the public, the broader public, looks at and perceives Pakistan.” This creates immense public pressure, demanding forceful retaliation for any perceived slight or attack, as demonstrated by the furious public outcry after the Pahalgam incident in May 2025. “There’s going to be significant amounts of pressure from the public on the government in India… it was very clear that India was going to respond with force,” Kugelman states, emphasizing how deeply public sentiment now intertwines with strategic decisions.

Fuelling this volatile public sentiment is a media landscape saturated with jingoism and, often, outright disinformation. While English-language nationalist channels capture global attention, the broader media sphere across South Asia consistently ratchets up hyper-sensationalism during crises. “It can be very dangerous,” Kugelman warns, “Because… the jingoism also encourages and at times propagates disinformation. And, you know, that in and of itself is very dangerous.” He directly connects this trend to recent conflicts, stating, “on the Indian side, so much of the jingoistic media content was accompanied by disinformation. I mean, oftentimes it was synonymous.” In an age where narratives can be manufactured and amplified at warp speed, this weaponized information environment makes rational de-escalation a monumental challenge.

The rise of cyber warfare, hybrid threats, and widespread disinformation campaigns raises critical questions about the efficacy of traditional nuclear doctrines. While governments are undeniably engaging in these new forms of conflict, Kugelman asserts that they do not diminish the paramount importance of maintaining nuclear preparedness. Both India and Pakistan have shown a disturbing willingness to employ conventional force increasingly, pushing closer to the nuclear threshold. “The more that you use, the higher up the escalation ladder you get,” he cautions, “and the higher you get up, you get closer to bumping up against the ceiling.”

Disinformation, by inflaming passions and deepening animosity, can dangerously accelerate this ascent. Kugelman suggests that these new dimensions of warfare, far from supplanting nuclear concerns, in fact amplify them. “One could argue… cyber warfare disinformation can deepen tensions between two countries that are nuclear and raise the risk, further raise the risk of nuclear escalation.” Compounding this is the ongoing internal debate in India regarding its stated No-First-Use (NFU) nuclear policy, with past statements from senior officials hinting at a potential reconsideration – a move that could further erode predictability in an already volatile environment.

China’s expanding military and economic influence casts an undeniable shadow over South Asia’s security dynamics. Despite recent diplomatic efforts between India and China, including a border agreement in late 2024 aimed at easing tensions, the core strategic competition persists. The May 2025 crisis vividly demonstrated the enduring strength of the China-Pakistan alliance, with Pakistan deploying Chinese-made jets against India for the first time in combat. Kugelman emphasizes that China remains Pakistan’s most critical arms supplier, capable of providing weapons systems that no other partner can match, especially as the U.S. continues to restrict Pakistan’s use of American-made weaponry against India.

China’s economic reach, primarily through the Belt and Road Initiative (BRI) and the China-Pakistan Economic Corridor (CPEC), is region-wide. While Kugelman notes a general slowdown in some BRI projects due to security concerns and economic issues – a trend confirmed by recent reports showing a significant drop in CPEC investment – China’s economic influence remains formidable. “This is really just something consistent that’s been playing out for some time,” he states, highlighting Beijing’s deep, steady penetration into the region, reshaping its strategic calculus.

Amidst these rising pressures, the question of strategic stability looms large. Kugelman offers a cautiously optimistic assessment: “the nuclear deterrent is actually alive and well.” While the May 2025 conflict tested the deterrent in ways not seen since the massive border buildup of 2001-2002, both sides ultimately demonstrated a shared desire to avoid an all-out war. “Neither side wanted an all out war,” he stresses, distinguishing governmental intent from jingoistic public rhetoric. India’s rapid, targeted airstrikes and Pakistan’s contained, albeit forceful, response were, in Kugelman’s view, calibrated moves reflecting a continued respect for the nuclear red line. The fact that India and Pakistan largely managed to negotiate their own ceasefire, rather than relying solely on external mediation, further underscores their grim recognition of the catastrophic stakes.

However, this “alive and well” deterrent is perpetually tested. India’s missile strikes, whether depicted as targeting terrorists or military assets, were unequivocally viewed by Pakistan as a violation of sovereignty. “When it comes to conflict… international normative ideals around respect for sovereignty and territorial integrity… they go out the door,” Kugelman starkly reminds us. The very act of such cross-border retaliation, irrespective of nuclear use, chips away at the foundational principles of statehood and international law, keeping the entire region on tenterhooks.

The path to de-escalation and sustained peace talks remains fraught. The Director Generals of Military Operations (DGMO) hotline, a vital communication channel even during wars, remains open and was utilized during the recent crisis. Beyond this, however, “the two sides just don’t line up when it comes to the issue of dialogue.” India’s unwavering stance against engaging Pakistan until “cross-border terrorism” ceases, combined with its rejection of discussing Pakistan-administered Kashmir, clashes directly with Pakistan’s insistence on Kashmir as a core issue.

Prime Minister Modi’s early attempt at outreach to then-Pakistani Prime Minister Nawaz Sharif, followed by a terrorist attack, appears to have instilled a “once bitten, twice shy” caution. And while Pakistan publicly calls for talks, it too has conditions. Adding to this grim calculus is the recurring “spoiler act”—often a terrorist attack—that invariably derails any nascent momentum toward dialogue. While India traditionally rejects third-party mediation for comprehensive talks, the May 2025 crisis saw a quiet but significant role played by external actors, with the UAE in particular thanked by Pakistan’s Prime Minister for its efforts in de-escalation, building on its prior role in brokering the LoC truce. This suggests that limited, targeted mediation for specific de-escalation objectives might be the only viable avenue for external engagement.

In a world increasingly consumed by its own inward-looking concerns, the question of who will fill the potential vacuum in South Asian peace looms large. Kugelman offers a sobering answer: “the region is going to be on its own.” While major powers like the U.S., Russia, and China broadly align in their desire to prevent nuclear escalation—a shared concern often rooted in their own vested interests in regional stability—their capacity and willingness for sustained, comprehensive mediation are limited. China, despite its rivalry with India, has massive investments in Pakistan that it cannot afford to see imperiled. Russia seeks new friends amidst its isolation. The U.S. balances critical interests with both India and Pakistan, making broad intervention fraught.

Yet, amidst this potential vacuum, Kugelman identifies a crucial, if understated, role for regional powers with significant leverage. He points specifically to the Arab Gulf states. “They provide significant amounts of energy exports and other goods,” he explains, giving them economic sway. Furthermore, the UAE’s successful role in brokering the LoC truce demonstrates a capacity for targeted, effective mediation. These nations, though not global superpowers, may be best positioned to “suggest incentives for India and Pakistan to ensure that things don’t get completely out of control.”

South Asia, a region of immense human potential, finds itself perpetually walking a razor’s edge. The interplay of nuclear might, emotionally charged narratives, and aggressive nationalism threatens to pull it closer to the abyss. Michael Kugelman’s sharp analysis reminds us that while the nuclear deterrent may still hold, its resilience is being tested as never before, demanding sustained vigilance and creative diplomatic solutions from within and, perhaps, from unexpected corners of the world.