Washington, June 12:
The ongoing conflict in the Middle East is emerging as a significant economic challenge for South Asia, with the World Bank warning that rising oil, gas and fertiliser prices could slow growth, fuel inflation and increase pressure on households and businesses across the region.
In its latest Global Economic Prospects report released on Thursday, the World Bank projected South Asia’s economic growth to moderate from 7 per cent in 2025 to 6.3 per cent in 2026 as the fallout from the Middle East crisis spreads through global energy and commodity markets.
Despite the slowdown, South Asia is expected to remain the fastest-growing region in the world, driven largely by India’s strong economic performance.
World Bank Chief Economist Indermit Gill said the effects of the conflict are already being felt across Asia.
“Asia is the worst-affected section of the global economy,” Gill said while briefing reporters on the report.
He noted that the consequences extend beyond the countries directly involved in the conflict.
“South Asia is being affected by higher oil, gas, mineral and fertiliser prices,” he said.
According to the report, the closure of the Strait of Hormuz has disrupted global energy supplies, leading to a sharp increase in oil prices. The World Bank expects Brent crude oil to average $94 per barrel in 2026, representing a 36 per cent increase over 2025 levels.
The report also forecasts a significant rise in fertiliser prices due to supply disruptions and higher natural gas costs, raising concerns about agricultural productivity and food inflation.
“If the conflict persists, the next thing that will be affected is food prices,” Gill warned.
The World Bank noted that the Gulf region has traditionally been a major supplier of fertilisers and critical agricultural inputs. Prolonged disruptions could therefore have far-reaching consequences for food-importing countries and agricultural economies.
South Asia’s heavy reliance on imported energy makes the region particularly vulnerable to external shocks. Higher fuel costs are expected to increase transportation and production expenses, adding to inflationary pressures and reducing economic momentum.
The report cautioned that risks remain heavily tilted to the downside. In a more severe scenario where energy supply disruptions continue for an extended period, Brent crude prices could climb to an average of $115 per barrel this year, further intensifying inflationary pressures across developing economies.
World Bank Deputy Chief Economist Ayhan Kose said the institution’s baseline forecast assumes that the most severe disruptions will begin easing by the end of July, allowing energy supplies to gradually recover during the second half of the year.
However, policymakers across South Asia are expected to face a difficult challenge in balancing economic growth with inflation control. Rising fuel, transport and fertiliser costs could increase pressure on government finances, trade balances and household budgets.
The World Bank warned that prolonged disruptions in Gulf energy supplies could weaken growth prospects across emerging markets and disproportionately affect vulnerable populations through higher food and energy prices.
The conflict comes at a critical time for South Asia. While the region continues to outperform the rest of the world economically, its dependence on imported energy leaves it exposed to global geopolitical shocks, making stability in energy markets crucial for sustaining growth in the years ahead.
