Gulf war hitting South Asia through oil shock: World Bank

Washington: The conflict in the Middle East is emerging as a major economic threat to South Asia through rising oil, gas and fertiliser prices, with the World Bank warning that the region is among the most exposed to the fallout from the crisis despite remaining the world’s fastest-growing economic region.

The World Bank’s latest ‘Global Economic Prospects’ report projects South Asia’s growth to slow from 7 per cent in 2025 to 6.3 per cent in 2026 as higher energy costs, inflationary pressures and supply disruptions ripple through the global economy.

World Bank Chief Economist Indermit Gill told reporters that the effects of the conflict were already being felt across Asia.

“Asia is the worst-affected section of the global economy,” Gill said.

He said the impact extended well beyond countries directly involved in the conflict.

“South Asia is being affected by higher oil, gas, mineral, and fertiliser prices,” Gill said.

According to the World Bank, the closure of the Strait of Hormuz has severely disrupted global energy markets. Brent crude oil is projected to average $94 a barrel in 2026, 36 per cent above 2025 levels, while fertiliser prices are expected to rise sharply because of disruptions to supplies and higher natural gas costs.

The report warned that these pressures could eventually spread from energy markets to food prices.

“If the conflict persists, the next thing that will be affected is food prices,” Gill said.

The World Bank said fertiliser prices are forecast to increase significantly this year, creating knock-on effects for agricultural production and food inflation. The Gulf region was a major supplier of fertiliser exports and inputs before the conflict, making prolonged disruptions a concern for food-importing economies.

South Asia’s heavy dependence on imported energy leaves many economies vulnerable to external shocks. While the region is expected to remain the fastest-growing in the world, the World Bank noted that higher import bills, inflationary pressures and tighter financial conditions would weigh on economic activity.

The report said risks remain tilted to the downside. If disruptions to energy supplies last longer than currently assumed, global oil prices could rise further and intensify inflation across developing economies. Under a more severe scenario, Brent crude could average $115 a barrel this year.

World Bank Deputy Chief Economist Ayhan Kose said the institution’s baseline assumption was that the worst disruptions would ease by the end of July and energy supplies would begin recovering during the second half of the year.

Even so, policymakers across South Asia are likely to face a difficult balancing act between supporting growth and containing inflation as higher fuel, transport and fertiliser costs feed through their economies. The World Bank warned that prolonged disruptions could weaken growth prospects across emerging markets and increase pressure on vulnerable households through higher food and energy prices.

The conflict comes at a sensitive moment for South Asia. The region remains the fastest-growing in the world, led by India, but is also heavily dependent on imported energy. Any sustained disruption in Gulf energy supplies would raise costs for governments, businesses and consumers across the region while adding pressure on trade balances and inflation.

IANS