A new UNDP report reveals that the escalating conflict in the Middle East could cost the Asia-Pacific economy up to $299 billion, pushing nearly 8.8 million people into extreme poverty.
The widening military escalation in the Middle East following coordinated strikes on Iran continues to send shockwaves through global markets, with the Asia-Pacific region emerging as one of the most vulnerable casualties. According to a United Nations Development Programme (UNDP) report titled “Military Escalation in the Middle East: Human Development Impacts Across Asia and the Pacific” (April 2026), the ongoing conflict is systematically unravelling years of human development progress. Assessing 36 countries across the region, the preliminary analysis warns that higher fuel, freight, and input costs are rapidly diminishing household purchasing power and straining public budgets in underdeveloped and developing nations alike.
South Asia Bears the Brunt of the Economic Fallout
While the Asia-Pacific region at large faces estimated output losses ranging between $97 billion and $299 billion – equivalent to between 0.3 and 0.8 per cent of the regional GDP – South Asia is indisputably at the epicentre of the crisis. The subregion alone could suffer losses exceeding $183 billion, amounting to as much as 3.6 per cent of its gross domestic product under severe scenarios.
The human cost is equally staggering. Globally, the conflict threatens to plunge an estimated 8.8 million additional people into poverty. South Asia accounts for the largest share of this alarming demographic shift. India, the region’s largest economy, faces the prospect of seeing approximately 2.46 million people pushed below the poverty line. The country’s poverty rate is projected to climb from 23.9 per cent to 24.2 per cent. Furthermore, the UNDP simulation indicates that India will experience a setback of 0.03 to 0.12 years of progress on its Human Development Index (HDI), while Iran could see up to 1.5 years of HDI progress completely erased by the conflict.
Energy Shocks and Supply Chain Disruptions
Energy serves as the primary transmission channel for this macroeconomic shock. With commercial shipping routes heavily disrupted and the Strait of Hormuz – a crucial artery handling over 80 per cent of crude oil and liquefied natural gas (LNG) bound for Asian markets – facing severe blockades, 33 of the 36 assessed countries are exhibiting high vulnerability to sudden energy price spikes.
The cascading effects of energy instability are severely impacting regional supply chains. Freight charges have soared, and war-risk insurance premiums for vessels have surged, triggering widespread route diversions. In India, which imports over 90 per cent of its oil requirements and heavily relies on the Middle East for crude and LPG imports, the ripple effects are already crippling key industries. Raw material costs for medical devices in India are expected to jump by roughly 50 per cent, and wholesale medicine prices have already climbed by 10 to 15 per cent. Similarly, Bangladesh faces acute logistical disruptions that threaten its vital garment industry, as Gulf carrier cancellations strand shipments and delay essential consumer goods.
Looming Food Security and Fertilizer Crisis
The interplay of rising transport costs and disrupted fertilizer supplies is deepening a regional food security crisis, arriving just ahead of key planting cycles. The Middle East remains a major global exporter of nitrogen-based agricultural inputs. India sources more than 45 per cent of its fertilizer imports from the region, and 85 per cent of its domestic urea production is reliant on imported LNG. As these supply chains fracture, agricultural input costs skyrocket, directly threatening to drive up domestic food prices.
Neighbouring countries face similarly dire prospects. Pakistan is particularly exposed; the UNDP report warns that the country’s food inflation could spike by an additional five percentage points in a prolonged conflict scenario. Sri Lanka, still reeling from its 2022 economic collapse, is once again vulnerable. The World Food Programme recently highlighted that Sri Lanka imported $2.5 billion worth of food in 2025, leaving its fragile economy intensely susceptible to the escalating global costs and threatening a deepening cycle of food insecurity.
Plunging Remittances and Tourism Revenues
Beyond trade and energy, the conflict is severing vital financial lifelines in the form of remittances and tourism. South Asian economies rely heavily on the nearly $100 billion sent home annually by expatriate workers in the Gulf. With 9.37 million Indians residing in Gulf nations contributing up to 40 per cent of India’s foreign remittances, any regional economic slowdown inevitably weakens domestic household incomes.
In Pakistan, over half of its remittance inflows originate from Arab countries, making its financial stability highly precarious amid the ongoing conflict. Nepal faces identical vulnerabilities, with remittances accounting for 26 per cent of its total GDP, of which 41 per cent flows directly from the Middle East. Compounding this issue, Nepal’s fuel reserves are critically low. Furthermore, vital tourism revenues are collapsing. Sri Lanka has witnessed a roughly 40 per cent drop in daily tourist arrivals since the conflict intensified, alongside estimated losses of $10 to $15 million per week in tea exports.
Vulnerable Demographics and the Path Forward
The socioeconomic damage inflicted by the Middle Eastern military escalation is deeply regressive, disproportionately impacting those least equipped to absorb the shock. Employment losses are overwhelmingly concentrated in informal sectors and micro, small, and medium enterprises (MSMEs) which depend heavily on imported energy and raw materials. In India, where approximately 90 per cent of the workforce operates in the informal economy, lower-skilled workers, migrants, and women are singled out by the report as the most exceptionally vulnerable demographics.
The UNDP cautions that the crisis has already transitioned into a prolonged stage of volatility. UN Assistant Secretary-General and UNDP Regional Director for Asia and the Pacific Kanni Wignaraja emphasized that standard economic management measures will not suffice in this landscape. To safeguard hard-won human development gains, governments must accelerate resilience by instituting adaptive, shock-responsive social protection systems, providing targeted cash transfers to vulnerable households, and fundamentally diversifying their energy and food supply chains away from structural external exposure.
