The Asian Development Bank (ADB) has warned that escalating tensions in the Middle East are posing growing risks to developing economies across Asia and the Pacific, threatening energy security, trade flows, remittances, investment confidence and overall economic stability.
In its latest Asian Development Outlook report, the ADB said the conflict, which intensified on February 28, 2026, has added significant uncertainty to the global economic environment at a time when many economies are already facing inflationary pressures, fragile financial conditions and slowing trade growth.
The report underscored the critical role of the Gulf States in supporting remittance inflows to South Asian economies, while warning that a prolonged Middle East conflict could significantly heighten economic risks. It noted that escalating tensions may negatively impact the region through higher oil prices, reduced tourism activity, and most notably a decline in remittances from Gulf countries, which account for nearly 40 percent of total remittance inflows to several South Asian nations.
Under the bank’s baseline “early stabilization” scenario, where tensions ease within about one month, economic growth in developing Asia and the Pacific is projected to slow to 5.1 percent during 2026 and 2027, compared with 5.4 percent recorded in 2025.
However, the report cautioned that if geopolitical tensions continue through the third quarter of 2026, regional growth could weaken further to 4.7 percent in 2026 and 4.8 percent in 2027 due to rising energy prices, supply chain disruptions and weakening investor sentiment, reports Al-Rai daily.
ADB also outlined a more severe scenario involving major disruptions to Gulf energy production and shipping routes extending into early 2027. In such a case, regional growth could fall by an additional 1.3 percentage points, while Brent Crude prices could surge to as high as $155 per barrel by the second quarter of 2026.
Inflation across the region is also expected to rise sharply. Regional inflation, which stood at 3 percent in 2025, is forecast to increase to 3.6 percent in 2026 under the stabilization scenario, mainly due to higher energy costs. If tensions persist, inflation could accelerate to 5.6 percent, putting additional pressure on households and businesses.
The report highlighted the strategic importance of the Strait of Hormuz, through which more than 25 percent of global seaborne oil trade and 20 percent of liquefied natural gas shipments passed in early 2025. Nearly 80 percent of these exports were destined for Asian markets, making the region highly vulnerable to any disruption in Gulf energy supplies.
ADB warned that prolonged disruptions in Gulf energy infrastructure could keep oil and gas prices elevated for years. Oman crude, a key benchmark for Asian importers, has already seen sharper price increases than Brent crude, reflecting mounting concerns over supply security.
Despite the challenging outlook, India is expected to remain one of the region’s strongest-performing economies, with growth projected at 6.9 percent in fiscal year 2026 and 7.3 percent in 2027, supported by strong domestic demand and structural reforms.
In contrast, China’s growth is expected to slow to 4.6 percent in 2026 and 4.5 percent in 2027 due to weakness in the property sector and subdued consumer spending.
The report also highlighted rising trade uncertainty following the United States’ decision to impose a 10 percent global tariff in February 2026, with the possibility of increasing it to 15 percent. While the tariffs may temporarily boost exports before implementation, they are expected to discourage long-term investment and add pressure on regional trade strategies.
ADB further warned that prolonged Middle East tensions could sharply reduce remittance flows from Gulf countries to South Asia, where Gulf remittances account for nearly 40 percent of total inflows in some economies.
Combined with rising oil prices and weaker tourism activity, declining remittances could weaken consumption, deepen external imbalances and increase inflationary pressures, particularly in vulnerable economies such as Sri Lanka.
The bank concluded that worsening geopolitical instability could complicate fiscal and monetary policymaking across the region. With fiscal deficits already widening and investors increasingly turning to gold as a safe-haven asset, the ADB stressed the urgent need for coordinated reforms, economic diversification and stronger investment in resilience to sustain long-term growth.
