Kathmandu, March 27: A fresh study by the Asian Development Bank has raised concern that ongoing conflict in the Middle East could hit remittance-dependent economies like Nepal hard, exposing them to multiple economic shocks at once.
According to the latest report titled ADB Briefs 384, the conflict may push up energy prices, disrupt supply chains, tighten financial conditions, and most worryingly, reduce remittance inflows. For a country like Nepal, where a large share of income comes from workers abroad, that is not a small problem.
The report points out that Nepal is among the most exposed economies in Asia. Remittances from West Asia alone account for 8.1 per cent of the country’s GDP, the highest share in the region. Any slowdown in economic activity in those countries would reduce job opportunities and earnings for Nepali workers, directly cutting the flow of foreign currency back home.
Energy is another pressure point. Nepal relies fully on imported fuel, so any rise in global oil and gas prices hits immediately. At one stage, crude oil prices surged to 120 dollars per barrel due to the conflict. Prices briefly eased after the President of the United States announced a pause in strikes on Iran, but signs of renewed tension have pushed them up again. Brent crude is now trading at around 107 dollars per barrel. Major Asian economies like China, India, Japan, and South Korea, all heavy oil importers, are also feeling the strain.
If the conflict drags on, the ADB projects economic growth in developing Asia could drop by 1.3 percentage points, while inflation may rise by as much as 3.2 percentage points. South Asia is expected to face the sharpest increase in prices, with inflation possibly rising by up to 4.9 percentage points.
The crisis is also spilling into agriculture. West Asia is a key supplier of chemical fertilisers, and disruptions in exports of urea and ammonia from countries like Qatar and Saudi Arabia have already pushed prices sharply higher. Data shows urea prices jumped by 42.9 per cent between late February and mid-March. For Nepal, where farming still supports a large part of the population, this means higher production costs and rising food prices.
Trade routes have not escaped either. Disruptions along key corridors such as the Strait of Hormuz have driven up freight charges and insurance costs. For an import-dependent country like Nepal, this translates into higher prices across almost all goods.
To reduce the impact, the ADB suggests governments should avoid blanket energy subsidies and instead target support to low-income households and affected industries. It also calls for reducing energy consumption, investing in alternative energy sources, and managing foreign exchange reserves carefully as remittance inflows face uncertainty.
The report ends with a warning. The crisis has once again exposed how vulnerable Asian economies are to external shocks. If the conflict continues, countries like Nepal could face deeper economic strain, testing their ability to stay stable in an already fragile environment.
People’s News Monitoring Service
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