Falling oil prices have hurt America’s enemies and helped revive a flagging global economy. But while broadly beneficial for Southeast Asia and beyond, cheap gas is not without its problems for the region’s emerging economies.

Oil prices have hit six-year lows this year at around $44 a barrel, with predictions from some analysts of a plunge to $20 amid lingering oversupply and weak demand. On February 10, Brent crude was trading at around $56 compared to its $115 level in June 2014, with the International Energy Agency (IEA) warning that “downward market pressures may not have run their course just yet .”

"It's the battle of the oil outlooks playing out here," John Kilduff, partner at New York energy hedge fund Again Capital LLC, told Reuters. "The IEA report is a good reminder that there's still a lot of supply to come and it doesn't give much hope for the bulls who say we've hit bottom and are now on the way up."

In a December 2014 report, the Asian Development Bank (ADB) said declining oil prices provided a “golden opportunity for many beneficial reforms.” Despite revising down its 2015 economic growth forecast for Southeast Asia to 5.1 from 5.3 percent, it noted the potential for an “upside surprise” given that most Asian economies are net oil importers.

“Falling global oil prices present a golden opportunity for importers like Indonesia and India to reform their costly fuel subsidy programs,” ADB chief economist Shang-Jin Wei said. “On the other hand, oil exporters can seize the opportunity to develop their manufacturing sectors as low commodity prices tend to make their real exchange rates more competitive.”

According to the Manila-based ADB, low oil prices could add 0.5 percentage points of growth this year for developing Asia, even at a forecast average Brent crude price of around $70 a barrel. The bank expects regional inflation to decline, falling to an estimated 3.5 percent in 2015, also helping to improve trade balances.

For Asian economies with little or no fuel subsidies, such as the Philippines, the lower inflation caused by weak oil prices should allow for “more dovish monetary policy than would otherwise have been possible,” according to Credit Suisse. But for oil exporters such as Indonesia, Malaysia and Brunei, the effects range from mildly beneficial to downright negative.

Indonesia: More gain than pain

Indonesian President Jodo Wikodo has taken advantage of lower prices to scrap gasoline subsidies, wiping $8 billion off the nation’s fuel bill, as well as hiking subsidized fuel prices by a third. Oil prices are particularly important to Indonesia, due to its position as Southeast Asia’s largest economy as well as its largest energy producer and consumer.

“The savings from the fuel price hike were about 1.1 percent of gross domestic product (GDP) but now the savings could be up to 1.5 to 2 percent of GDP,” Santitarn Sathirathai, an economist at Credit Suisse in Singapore, told the Financial Times. “That is free fiscal ammunition that they can use to support growth.”

ANZ Research expects headline inflation in Indonesia to plunge from over 8 percent to just 1.5 percent by year-end, with the current account and government finances both improving due to a halving of the previous $12 billion annual oil and gas trade deficit.

Cheaper energy is seen as a boon to the main island of Java, home to 70 percent of Indonesia’s population and four-fifths of its factories and with only limited production of oil and gas. But other regions that are reliant on resources and energy, including East Kalimantan, Sulawesi and Sumatra, are exposed to the effects of lower prices.

The Indonesia Petroleum Association has warned that low energy prices could force its members to curb capital expenditure by up to 20 percent this year, while state-owned energy company Pertamina has said it could cut spending by half should oil prices fail to recover. Low oil prices could also curb foreign investment in offshore oil and gas ventures, according to geopolitical intelligence firm Stratfor.

However, oil and gas-related revenues accounted for 14.4 percent of Indonesia’s budget in 2014, compared to the 20 percent spent on fuel and electricity subsidies, Stratfor noted.

“Even if government oil and natural gas-related revenues fall by half in 2015, subsidy reductions and eliminations will still give Jakarta a comfortable buffer to expand spending on infrastructure and social services,” it said.

Thailand, Philippines, Singapore Benefit

As Southeast Asia’s largest net energy importer, Thailand is expected to be a major beneficiary of cheap oil, given that it spent an estimated 10 percent of its GDP on oil imports in 2014. Government subsidies for poor households are not seen as a major drain, while energy-related revenues accounted for only 3.5 percent of the budget last year.

According to Stratfor, Thailand generates most of its energy from natural gas, of which 70 percent is imported from Myanmar. Falling gas prices are therefore expected to generate another boost for the Thai economy, giving its military rulers a “subtle buffer against economic and social instability.”

In January, Thailand reported negative inflation for the first time since September 2009, largely due to lower oil prices, while cheaper oil could boost GDP by half a percentage point.

The Philippines is seen as another winner, particularly since there are no government fuel or electricity subsidies, although offshore oil and gas projects could suffer reduced investment. According to ANZ Research, cheaper oil could curb inflation to just 3 percent in 2015, giving the nation’s central bank scope to maintain easy money policies and allowing the government to boost revenues by hiking railway fares.

Lower energy costs are also a positive for import-reliant Singapore, Laos and Cambodia. Vietnam may also benefit due to its position as a net oil importer.

Malaysia, Brunei hard hit

However, Malaysia’s position as a net oil importer and the region’s second-largest producer leaves it exposed to slumping prices. According to Credit Suisse, lower revenues from oil exports will wipe out any government savings on fuel subsidies, and the Malaysian government has already moved to slash spending.

According to Bank of America Merrill Lynch, oil-related revenue could dive to 3.1 percent of GDP this year from 5.9 percent in 2014 . Nearly a third of Malaysian government revenue is from oil-related income, with around half from taxes and duties and the remainder dividends from state-owned energy company Petronas.

Petronas has warned it could slash nearly $6 billion in government payments in 2015, as well as crimping capital and operational spending, should the oil price remain below $75. In January, the Malaysian government announced it would cut spending by $1.5 billion while increasing its budget deficit to 3.2 percent of GDP and lowering its GDP growth forecast to 4.5 to 5.5 percent from 6 percent.

“In 2015, reduced government spending could combine with opposition to the perceived entrenchment of conservative, pro-ethnic Malay hardline voices within the government and its efforts to sideline opposition leader Anwar Ibrahim to give rise to social unrest,” Stratfor said, although it added that any disorder would be unlikely to disrupt Peninsular Malaysia or its energy hub of Borneo.

Brunei is also set to suffer, given that it exported 31 percent of its GDP in crude oil and 37 percent in liquefied natural gas (LNG) in 2013, although unlikely to cause social unrest. Myanmar could see reduced gas exports to Thailand, although it is expected to benefit from transit fees on pipeline exports to China.

Australia: LNG industry at risk

Further south, the Australian economy is expected to gain a “free kick” from cheaper oil despite the nation’s position as a net energy exporter. However, lower oil prices are threatening the development of the nation’s emerging A$200 billion (roughly $156 billion) export LNG industry as well as curbing government revenues, wiping out an estimated A$760 million in petroleum resource rent tax receipts.

According to Westpac economists, tumbling oil prices could cut LNG exports by more than A$30 billion in fiscal 2018, “gouging a black hole in revenues.” The slump has reportedly led to the deferral of billions of dollars worth of new projects, including Woodside Petroleum’s A$40 billion Browse project in Western Australia.

Nevertheless, analysts still see a net benefit overall for Southeast Asia from cheaper oil, despite the impact on its oil and gas industry.

“In the near term, most of Southeast Asia will benefit from the downward pressure of low oil and natural gas prices on transportation, consumer goods and other commodities. But protracted low energy prices could deter foreign investment into offshore oil and natural gas developments in some parts of the region, paving the way to worsening energy security,” Stratfor said.

“Nonetheless, in 2015, the benefits of low oil prices for consumers, manufacturers and governments across most of the region will outweigh the risks to energy investment and activity.”

With oil prices expected to remain low through next year and possibly beyond, Southeast Asia has been given an opportunity to strengthen its competitiveness, according to the World Bank. Can policymakers take advantage?