A sharp escalation of conflict in the Middle East is threatening to reverse years of development progress across Asia and the Pacific, with potential losses of up to $299 billion and millions at risk of falling into poverty, a United Nations report has warned.
India, Sri Lanka, and Bangladesh too have faced significant disruptions as Gulf carriers cancelled flights, stranding air cargo shipments. As more than half of Bangladesh’s air cargo normally transits through Gulf hubs, the impact on these nations is severe.
The United Nations Development Programme (UNDP) said in its latest report, “Military Escalation in the Middle East: Human Development Impacts Across Asia and the Pacific,” that the crisis is rapidly spreading beyond the battlefield through global energy, trade and financial systems.
The report describes the escalation as a global development shock rather than a regional disruption, driven largely by market transmission. Asia-Pacific economies remain highly exposed due to their dependence on imported energy, much of which flows through the Strait of Hormuz.
Any disruption or perceived risk in the corridor pushes up global oil and gas prices, feeding directly into inflation across importing countries. The UNDP said the region receives most shipments passing through the strait, making it particularly vulnerable to volatility.
As fuel prices rise, the impact spreads across transport, electricity and food supply chains, turning the crisis into a daily cost-of-living pressure.
The economic toll is already mounting.
UNDP estimates suggest the region could face losses ranging from $97 billion to $299 billion, equivalent to up to 0.8 per cent of GDP, depending on how long and how intensely the conflict continues.
Higher import bills, weaker trade and tighter financial conditions are expected to drag down growth. Rising energy costs are already weighing on industrial output, while inflation is eroding consumer demand.
For export-oriented economies, slowing global demand is adding further pressure.
Energy, trade, and the ‘Strait of Hormuz’ factor
Energy serves as the primary transmission channel for the shock, with 33 out of 36 assessed countries reporting high vulnerability to oil-price spikes. This is largely due to the region’s structural dependence on the Strait of Hormuz, through which approximately one-fifth of the global oil supply transits.
In 2024, an estimated 84 per cent of crude and 83 per cent of liquefied natural gas (LNG) passing through the Strait was destined for Asian markets.
Trade and supply chain disruptions represent the second major channel of impact.
War-risk insurance premiums for vessels in the Persian Gulf have surged by more than 1,000 per cent in some instances, while rerouting ships around the Cape of Good Hope has extended delivery times from 31 to 41 days.
The impact on specific nations is stark. In India, West Asian markets account for 14 per cent of exports and nearly 21 per cent of imports.
Bangladesh has faced severe disruptions as Gulf carriers cancelled flights, stranding air cargo shipments. It sould be noted that, more than half of Bangladesh’s air cargo normally transits through Gulf hubs.
In Sri Lanka, losses in tea exports are estimated at $10–15 million per week, while the Philippines relies on the Middle East for 98 per cent of its crude oil imports.
Human cost equally stark
The report estimates that 8.8 million people in Asia-Pacific could fall into poverty, while the global figure could exceed 30 million if the crisis persists.
As energy and food prices rise, low-income households are forced to spend more on basic needs, while wages fail to keep pace. Real incomes decline, pushing vulnerable groups below the poverty line.
Informal workers and small businesses are among the hardest hit, facing rising costs and shrinking demand. The report also highlights setbacks in human development.
Measured through the Human Development Index, progress in countries such as Iran has already been pushed back by up to one and a half years. Across Asia-Pacific, the impact ranges from weeks to months of lost progress, depending on exposure and resilience.
South Asia remains particularly vulnerable due to high energy import dependence, limited fiscal space and large low-income populations. The UNDP describes the situation as a “triple shock” of energy price spikes, food and fertiliser inflation, and slowing economic growth.
Together, these forces are squeezing living standards and creating a cycle of weaker consumption, slower growth and fewer jobs.
The burden is not evenly shared.
Low-income households are the most affected, while women and informal workers face disproportionate risks. Migrant workers are also exposed as economic slowdowns and reduced employment opportunities.
Governments have responded with short-term measures such as fuel subsidies, price controls and cash transfers, while exploring energy diversification.
However, limited fiscal space remains a major constraint. High debt levels and post-pandemic pressures are restricting the ability of many countries to sustain large-scale support without compromising long-term investments.
The report warns that the crisis risks becoming structural. Even if tensions ease, disruptions in energy and food markets may persist, with supply chains slow to recover, and price volatility lingering.
The UNDP said the crisis is shifting from an acute phase to a more enduring period of instability. In an interconnected world, the report concludes, conflict in one region can quickly translate into global development setbacks.
For Asia-Pacific, what began as a distant geopolitical crisis is now an immediate economic challenge. For millions, the impact is already visible in rising prices, falling incomes and growing uncertainty.
