Manila: A prolonged conflict in the Middle East could reduce economic growth in developing Asia and the Pacific by up to 1.3 percentage points over 2026-2027 if energy market disruptions persist for more than a year.
According to Azeri-Press News Agency, the Asian Development Bank (ADB) issued a warning in a recent brief, indicating that severe tensions could also lead to a 3.2 percentage point increase in inflation across the region. The primary culprits of this economic impact are soaring energy prices, supply chain disruptions, and tighter financial conditions, especially critical for a region that stands as the world's largest energy-importing hub.
The ADB's regional macroeconomic outlook for 2026 is now heavily influenced by geopolitical tensions. Although direct trade exposure to Iran and other Middle Eastern countries is limited, Asian economies are particularly susceptible to ripple effects in the global oil and liquefied natural gas (LNG) markets.
In a baseline scenario envisioned by the ADB, where the conflict endures for only 1 to 2 months, Brent crude is expected to average $72 per barrel in 2026. However, in 'Scenario 3,' which accounts for a year-long severe tension, oil prices could skyrocket to over $155 per barrel in the second quarter of 2026 before gradually receding.
The regions of developing Southeast Asia and the Pacific are anticipated to bear the brunt of the growth downturn. Under sustained tensions, these subregions could witness cumulative growth losses of 2.3 percentage points and 2.2 percentage points, respectively.
Conversely, some hydrocarbon exporters in Central Asia might experience a slight growth uptick of 0.2 percentage points, capitalizing on elevated prices.
The report underscores Asia's vulnerability due to its concentration on import sources, with about 20 percent of global oil and LNG trade transiting through the Strait of Hormuz.
The ADB report also highlighted the fragmented nature of the region's collective response, as major consumers such as the People's Republic of China and India are not part of the International Energy Agency framework. This fragmentation limits the potential for coordinated emergency oil reserve releases.
Beyond energy, the conflict poses threats to maritime transport and aviation corridors between Asia and Europe. Manufacturing sectors dependent on just-in-time delivery for semiconductor components, fertilizers, and chemicals are particularly at risk of production delays and escalating costs.
Albert Park, the chief economist at the Asian Development Bank, emphasized that the duration of these disruptions will ultimately determine the magnitude of the economic impact on the region's developing nations.