The World Bank has raised concerns about the Middle East conflict posing a significant economic threat to South Asia. The region faces escalating oil, gas, and fertiliser prices, impacting its growth prospects. The ‘Global Economic Prospects’ report predicts a slowdown in South Asia’s growth from 7% in 2025 to 6.3% in 2026 due to higher energy costs and supply disruptions.
World Bank Chief Economist Indermit Gill highlighted the widespread impact of the conflict on Asia, stating that it is the worst-affected section of the global economy. South Asia, in particular, is experiencing the effects of increased oil, gas, mineral, and fertiliser prices as a result of the crisis.
The closure of the Strait of Hormuz has led to significant disruptions in global energy markets, with Brent crude oil expected to average $94 a barrel in 2026. The report also warns of rising fertiliser prices and potential spillover effects on food prices. Fertiliser price hikes could affect agricultural production and food inflation, especially in economies heavily reliant on fertiliser imports from the Gulf region.
South Asia’s heavy dependence on imported energy makes it vulnerable to external shocks, despite being the fastest-growing economic region globally. The World Bank cautions that higher import bills, inflation, and tighter financial conditions may dampen economic activity in the region. Risks are skewed to the downside, with the possibility of further oil price increases and inflation if energy disruptions persist.
World Bank Deputy Chief Economist Ayhan Kose anticipates a gradual easing of disruptions by the end of July, with energy supplies expected to recover in the latter part of the year. Policymakers in South Asia are facing a challenging task of balancing growth support with inflation containment amid escalating fuel, transport, and fertiliser costs. Prolonged disruptions could hamper growth in emerging markets and escalate pressure on households through increased food and energy prices.
The ongoing conflict presents a delicate situation for South Asia, a region heavily reliant on imported energy. Any prolonged disruption in Gulf energy supplies could escalate costs for governments, businesses, and consumers, impacting trade balances and inflation levels.
