Southeast Asia Fuel Subsidy Reforms 2026: Malaysia, Indonesia, Thailand

Published 10 March 2026 · Updated 14 October 2026

Southeast Asia hosts some of the world's most expansive fuel subsidy programmes — and is now the region where reform pressure is most acute. Fiscal stress, IMF engagement, and growing awareness that subsidies primarily benefit wealthier car owners have pushed Malaysia, Indonesia, and Thailand to restructure how they support fuel consumers. This article tracks the state of play in 2026 and what it means for pump prices across the region.

For live regional pump prices, use the fuel price explorer. For background on the economics of subsidies, see our glossary entry on fuel subsidies.

Regional overview

Malaysia: Moving to targeted subsidies

Malaysia's fuel subsidy system had, for decades, fixed petrol prices below market regardless of income — meaning a wealthy car owner and a subsistence farmer paid the same subsidised price at the pump. Analysis consistently showed that the top income quintile received a disproportionate share of the subsidy value.

The Madani government's 2024 reform introduced income-based targeting for RON95: Malaysians earning above a threshold now pay a market-linked RON95 price, while lower-income households retain the subsidy via a MyKad-linked system. By 2026 the scheme has been refined — approximately 60% of RON95 consumers qualify for subsidised rates. The fiscal saving versus the pre-reform blanket subsidy is estimated at MYR 6–8 billion per year.

Indonesia: Pertamina subsidy and reform pressure

Indonesia's fuel subsidy runs through Pertamina, the state oil and gas company. Pertamina sells Pertalite (RON 90) and Biosolar (subsidised diesel) at fixed prices set by the government, with the budget compensating Pertamina for the difference between the market cost of fuel and the retail price.

This system creates enormous fiscal exposure when crude oil prices rise. In 2022, the subsidy bill reached approximately USD 34 billion — over 10% of government expenditure. Successive governments have raised Pertalite prices modestly and tightened access (restricting Pertalite purchase for vehicles above a certain engine size), but a fundamental restructuring remains politically difficult.

Indonesia's situation parallels the broader Middle East subsidy challenge; for context see our analysis of Middle East fuel subsidy reforms.

Thailand: The Oil Fund mechanism

Thailand's Oil Fund is a statutory body that collects a per-litre levy on fuel when market prices are low, building reserves that are then deployed to cap retail prices when market prices rise. The system provides price stability rather than a direct subsidy — but when it runs large deficits (as it did in 2022–2023 when crude spiked) the government must recapitalise it from budget.

By 2025–2026, Thailand has been gradually allowing more market pass-through on petrol while maintaining partial diesel price support for commercial transport. Diesel — used extensively in lorries and fishing boats — remains politically sensitive; sharp diesel price increases raise food transport costs and feed into headline inflation.

Vietnam and the Philippines

Vietnam uses a price-formula regulation where the Ministry of Industry and Trade sets maximum retail prices based on a basket of import prices, transport costs, and a fund contribution. The formula is updated every 10 days, providing more market responsiveness than fixed-price regimes, but the government frequently intervenes when formula-derived prices rise too quickly.

The Philippines is the most market-oriented fuel market in ASEAN — prices are set by oil companies based on international benchmarks. The government retains the power to suspend excise duties on fuel temporarily during supply emergencies (used in 2022 and 2023), but does not operate a permanent subsidy.

Reform lessons from the region

Successful fuel subsidy reforms across Southeast Asia share several characteristics:

• Targeted transfers: Redirecting subsidy value to lower-income households (cash transfers, transport vouchers) rather than price suppression for all
• Gradual price increases: Stepped price adjustments rather than single large shocks reduce social and political backlash
• Price transparency: Publishing the formula behind retail prices builds public understanding and reduces perceptions of arbitrary pricing
• Parallel support: Offsetting price rises with public transport improvements or targeted income supplements

The IMF's framework for fuel subsidy reform — referenced in our guide to fuel subsidy reform — emphasises that the fiscal savings from reform must visibly benefit the population to build and sustain political support.